What is a credit card balance transfer? (with photos)

Credit card balance transfer terms often include low or zero percent introductory APRs.

A credit card balance transfer occurs when a credit card holder opens a new credit card to pay for the old one. The debt and interest is then owed to the new company, which usually offers a grace period where a smaller amount of interest is charged on the transferred balance. It may be possible to find two, one or even zero percent interest. Often, this introductory fee lasts about six months to a year after the balance is transferred. There is usually no fee for the transfer and anyone with a valid social security number and mailing address can take advantage of the option.

Purpose of credit card balance transfers

A balance transfer can provide a solution to debt scenarios that involve high interest, high debt, and little available savings.

Balance transfers are a way to help cardholders pay off credit card debt. Credit cards are big business these days, with many companies making fortunes from financial expenses. The average annual interest rate is around 16% on most credit cards. With this type of interest, it can be difficult to pay off a credit card because it is consistently charging interest and adding to the principal.

For a savvy consumer, a credit card balance transfer can be an excellent method of reducing debt. This leaves the person free to pay off the credit card balance without incurring additional interest. Using this strategy, a person could potentially open a new account that offers a balance transfer when the old one expires, transfer the entire balance to the new card, and start a new grace period with low or no finance charges.

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While the credit card balance transfer benefits the consumer, it also benefits the credit card companies. Another purpose of balance transfer is to help financial institutions win new customers. Many institutions offer free transfers and grace periods to generate more business and, eventually, more money.

things to consider

Making a balance transfer work is an excellent practice, but it takes diligence. When transferring to a new institution, there may be some fine print attached with hidden fees such as transfer fees, annual fees, and membership fees. Transfer fee amounts are typically a percentage of the total transferred balance. Some transfer fees will be capped, usually around $50 or $60 US Dollars (USD), or can be significantly higher.

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