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Balance transfer specific credit cards allow you to transfer what you owe from one lender to another. Simply put, you will use a new line of credit to pay off an existing line of credit. It sounds simple and really is, but it can cause some problems if you do not take steps to ensure you are getting the best possible deal. In fact, if you are not careful, you could end up paying more by transferring the balance than you did beforehand.
How Balance Transfers Work
You can accept credit card offers that allow balance transfers or apply for these directly over the Internet. One key thing to consider is to alert the credit card company of your interest to transfer a balance of an existing line of credit to a new line of credit, if you are approved. By doing this, you ensure the lender takes this into consideration before accepting your application. Most online applications ask if you intend to transfer a balance if you receive the card, but if they don’t it is worthy to notify the issuer right away – this way you will receive the introductory rate sooner as the clock begins ticking once you receive your card in the mail.
The bulk of credit card companies offer balance transfers and charge fees for doing so. These fees may be high, expressed in a percentage of the transaction transferred or a flat fee that may be up to $50 or more. However, most of the major credit card companies no longer offer a cap. You can find out what these fees are by looking at the terms and conditions provided by the lender. By federal law, this information must be presented to you prior to submitting your application. Some fees may be higher or lower, depending on your creditworthiness. Lenders charge these fees as administrative fees to offset some of the risk by agreeing to lend to you, and taking on your debt.
Key Features in Balance Transfers to Look for
When applying for a balance transfer card, consider all details of the offer or credit card. This includes the APR, or annual percentage interest rate, the annual fee and whether or not any additional rewards programs or services are available from the lender. These differ widely based on your creditworthiness. Nearly all balance transfer credit cards will base your credit limit and your ability to obtain the card on your credit score.
There are numerous benefits to using a balance transfer credit card. If you have a credit card with a high interest rate, for example, but you qualify for a lower interest rate through the balance transfer credit card, moving that balance over can be very cost effective. You could save a substantial amount of money by making this change. For example, you have Credit Card A with an interest rate of 29 percent. You have worked hard to improve your credit score and now qualify for a new line of credit from Credit Card B. This company also offers balance transfers to new customers. You qualify for 19 percent interest there. If you move your existing balance from Card A to Card B, you could save 10 percent APR per year. That could be several hundreds of dollars.
Another way to benefit from a balance transfer credit card is to use the new card as a type of debt consolidation. Instead of paying three or more credit cards each month, consolidate your debt on one, new credit card. Thus, you end up making one payment per month instead of three. In addition, this may help you to make a lower monthly payment overall, especially if your interest rate is lower.
Many credit card lenders will encourage potential applicants to apply for balance transfer incentives as part of introductory offers on credit cards. For example, the card may offer a zero percent APR on balance transfers for fifteen months. This means that during the first fifteen months, the balance transfers you make may have no interest applied to them barring that you make the minimum payment.
If you do accept any type of balance transfer offer, it is critical to know the fees associated with these offers. Some will charge a per-transaction fee, for each transfer you make. This can add up and become quite expensive in the long term. Another fee scenario occurs when introductory offers expire. For example, after the fifteen month interest free or 0% APR expires, the balance transfers may have a much higher interest rate for as long as you are paying the balance transfer off.
Finding the best credit card offer requires factoring in both the introductory balance transfer period as well as the balance transfer fees. Note that some balance transfer fees from certain companies are higher than others, therefore make sure that the math works whichever balance transfer card that you choose.