How Does a Balance Transfer for Credit Cards Work?
The purpose of a balance transfer credit card is to place a balance from an old credit card onto a new one. In other words, it pays off the old issuing card company. The credit cardholder completes a credit card application just like he or she did when opening the previous credit card. Typically, card buyers shopt for balance transfer credit cards based on the “perks.”
These perks include an introductory interest rate. The rate varies, but it could go as low as zero percent. The introductory rate may last a few months to one year depending on the issuing credit card company. This means that the cardholder doesn’t accumulate more debt with interest rates during the introductory period. After the period is over, the rate is charged each month the person carries a balance on the credit card.
Opening a balance transfer credit card has many advantages for the cardholder. He or she is eliminating a credit card with possibly high interest rates and finance charges. Also, the individual can work on reducing debt by large payments on the new credit card without having to worry about high interest fees.
Be Careful to Read the Fine Print
However, there are some major disadvantages. Balance transfer credit cards require a good credit history to receive an approval. Most card issuers require a fee to open a new credit card. The fee-free balance depends on the person’s credit score. The fee could be a flat rate or a percentage of the balance transferred. For instance, it could be three percent, $50, or more.
Transferring one balance to another credit card doesn’t close the existing credit card. The cardholder will still have to go through the process of closing the account. Also, the introductory interest rate only applies to balance transfers and regular purchases. If there are any transactions that don’t fit into those categories, the introductory rate doesn’t apply.
There’s a lot of fine print associated with balance transfer credit cards. So a cardholder interested in pursuing this credit card should be extremely aware of the associated terms. This will save you from getting into financial trouble later.
How to Obtain a Balance Transfer
For anyone interested in applying for a balance transfer credit card, there are some things to do. Provide the new credit card company with all the credit card accounts that will be transferred to the new card. The cardholder is also required to tell the company how much he or she is transferring. For instance, if you have a credit card balance of $5,000, you may only want to transfer half of that amount to the new card.
The next step is contacting all the credit card companies or creditors that will have the balances transferred to the other credit card. This process takes about two weeks for the money to be transferred to the new credit card. Thus, if you have a payment due during this time, it should be paid. This will avoid any late fees.
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Posted on March 24, 2023