Ever feel like those minimum payments just aren’t cutting it? Or, maybe you’ve got multiple loans and it’s becoming harder to remember each payment due date? A balance transfer might be something to think about. It allows you to move a credit card or loan balance—within your credit limit—from one company to another in order to consolidate debt or get a lower interest rate. So how can it help you? And what are some things to consider?
Balance transfers might be good for the following:
If you opt for a balance transfer, you have the ability to move all or some of your debt to a new or different credit card account. It could be an effective way to pay down an existing balance at a lower, more manageable rate. Credit card companies may offer you a reduced rate on transferred balances for a limited period of time. If you are opening a new credit card, this is known as an introductory rate. If you’re transferring a balance to an existing credit card, it’s called a promotional rate.
Another reason you might choose a balance transfer is that it could help you re-organize your finances. If you have multiple credit cards or loans, it can be difficult to remember various payment due dates. But, if you consolidated that debt onto one credit card account, you only have to worry about one payment, which means you may be able to keep track of payments a little easier.
Perhaps the biggest benefit you could earn from a balance transfer is the ability to save money on interest. For instance, let’s say you transferred the debt you owed to a new credit card with a lower APR for the first 18 months. If you paid off the balance before the reduced rate expires, you could potentially save hundreds of dollars. There are a number of balance transfer calculators online that can help determine how much a transfer might save you.
But, before making a transfer, keep these things in mind:
Factor in fees
Banks may not offer this option for free. They might charge you a transfer fee to do so, typically either a flat fee or within the range of 3-5 percent of the transferred amount. For example, if you move a balance of $5,000 and the transfer fee is 4%, you’ll be charged $200. Where the fee is a percentage of the amount transferred—the more you transfer, the higher the fee. So before you make a transfer, make sure it’s worth it.
Know the terms
Remember, all good things must come to an end, and the same is true for promotional interest rates. Promotional rates typically last between 6-18 months, so during the promotional period, make payments responsibly. Also, be sure to identify what the APR will be once the promotional rate expires. Sometimes, it can be even higher than the rate you were paying before the transfer.
There may be other terms that impact your decision to transfer a balance—you should always know exactly what you’re signing up for. Check for things like whether you might lose your grace period when you make new purchases after transferring a balance—because not all credit card balance transfers are the same. For example, Capital One credit card holders—excluding cards offered by our partners—can avoid interest on new purchases after transferring a balance by paying the "Interest Saver Payment" identified on their statement by the due date each month.