In theory, credit card balance transfers sound like a no-brainer: Trade high-interest credit card debt for no interest. But, as with any debt consolidation strategy out there, it’s important to understand all the terms and conditions before jumping in.
Always read the fine print before signing up to transfer your credit card balance. Entering into an agreement equipped with the information you need will help you make the most of your transfer — as well as avoid misunderstandings along the way.
How Balance Transfer Cards Work
Conducting a balance transfer means shifting your current balance from a card — or two to three cards, depending on the lender’s terms — with higher interest rates to a special card with no or low APR for a certain amount of time. If executed correctly, this will give you the opportunity to apply your monthly payments directly to your balance without interest accruing.
Be aware the interest rate for which you qualify on a new card — and the length of the introductory period — will depend on your credit rating, among other factors. This is why it’s important to shop around for offers and check your credit score before applying.
Always do the math to make sure you’ll come out ahead, everything included.
Balance Transfer Fine Print: What to Look for
It’s absolutely worth exploring balance transfers when you’re figuring out how to consolidate debt. However, transferring your balance won’t decrease it — nor will it automatically save you money once you factor in associated fees. The good news is knowing exactly what the process will entail could help you steer clear of common pitfalls and find a card that cuts you a break on interest.
A lot goes into evaluating whether a particular balance transfer offer is advantageous, such as:
- Introductory period: How long will APR stay low or non-existent? These promotional periods often last between six and 18 months, after which they jump back up.
- Amoun of time to transfer: Many cards specify holders must transfer the funds within a certain window of time, like two months, to qualify for the intro rate.
- Transfer fee: The average balance transfer fee is around 2.6 percent of however much you transfer, although some cards carry a transfer fee up to 5 percent.
- Avoid new purchases: Many transfer cards only apply the promotional APR to transferred funds, so any new purchases you put on the card will carry finance charges at the regular interest rate without a grace period.
- Avoid penalties: Even a small mistake, like missing a payment, can jeopardize your special APR rate. So, it’s very important to stay on top of payments and avoid violating any other cardholder terms and conditions to take full advantage of the offer. Pro tip: Divide your balance into the number of low- or no-interest billing cycles you get, then set up autopay for that amount.
- Annual fee: Some cards charge an annual fee, separate from the transfer fee.
Unfortunately, sometimes cardholders get stuck in a cycle of conducting balance transfers every year or two without making much of an actual dent in their debts. Avoiding this pattern means knowing how to evaluate offers up front so you can choose a good fit and taking advantage of the promotional period to really dig into your debt.
Rushing into a balance transfer agreement because it sounds like an easy solution can yield some nasty surprises later — “I didn’t know the fees would cost this much!” — so read the fine print up first, then read it again.