How To Get The Best Deal On A Credit Card Balance Transfer

By Michael Diaz. May 7th 2016

If you have a significant amount of credit card debt, you might want to consider doing a balance transfer to a new credit card. Transferring a credit card balance from a high interest rate card to a low interest rate card is a great way to reduce your overall credit card debt. However, there are some important things you need to know in order to get the best deal on a balance transfer.

What Is A Credit Card Balance Transfer?

Before examining how to get the best deal on a balance transfer, you need to understand what a credit card balance transfer is and why it might be a good idea to get one.

In the simplest terms, a credit card balance transfer is using one credit card to pay off a portion or all of the balance of another credit card. For example, you might use a new credit card to pay off $5,000 of debt that you have on another credit card. After the transfer, the new credit card would now have a balance of $5,000 and the old credit card would reduce its balance by $5,000. Typically, balance transfers are only done when the debt is transferred to a credit card (or cards) with a lower interest rate than the original card.

Why Would Anyone Want To Do A Balance Transfer?

In general, you should only do a credit card balance transfer if it results in you paying a lower interest rate on the transferred debt. For example, in the example above, it would only make sense to do the $5,000 transfer if the interest rate on the new card is lower than the interest rate on the original card. Having a lower interest rate will allow you to pay back the debt balance faster because more of your monthly payments will go to repayment of the principal balance.

Many credit card companies will give you a promotional period when you do a balance transfer with them. During the promotional period, you might pay no or little interest on your debt balance. However, once the promotional period expires, the credit card company will typically raise the interest rate significantly (possibly to a level higher than your previous credit card). Therefore, you might want to reconsider doing a balance transfer if you do not think you will be able to pay off the credit card debt before the promotional period ends.

Why Would A Credit Card Company Offer A Balance Transfer To Its Customers?

You might be wondering why credit card companies would offer balance transfers to its customers. Here are three reasons:

  • Transfer Fees: Many credit card companies charge a transfer fee for balance transfers. The fee is usually a percentage of the total amount transferred. For example, a credit card company can rake in $100 by charging a two percent transfer fee on a balance transfer of $5,000.
  • New Business: Many credit card companies offer balance transfers as a way to attract new business.
  • High Interest Rates After Promotional Period: Credit card companies generally offer no or very low interest rates for balance transfers during the promotional period. However, once the promotional period is over, the company can increase the interest rate significantly.

How To Get The Best Balance Transfer Deal

In order to get the best deal on a balance transfer, you need to take these considerations into consideration:

Know How Long The Promotional Period Is

The length of the promotional period will vary depending on the company. It can range from a few months to over one year. However, once the promotional period is over, the credit card company can jack up the interest rate on your transferred debt. Therefore, you need to find out how long you have before the introductory interest rate goes away.

Keep in mind that you will save the most money by paying off the transferred debt before the promotional period ends. If you don’t think you will be able to do this, try to find a longer promotional period with a similarly low rate.

Know What The Interest Rate Is

Remember that you should only do a balance transfer if you get a lower interest rate on the transferred debt.

Know What The Transfer Fee Is

Many credit card companies charge a transfer fee for balance transfers. If the card company you are planning on doing a transfer with charges a fee, make sure you know what that fee will be. In some cases, the size of the transfer fee might outweigh any savings benefit that you would get from the lower interest rate. In this case, you should not do the balance transfer. Note that balance transfer offers with no transfer fee tend to have shorter promotional periods.

Don’t Miss A Payment

Some credit card companies have stipulations that if you miss a payment during the promotional period, the interest rate will automatically increase. If your company has that stipulation, make sure that you do not miss a monthly payment.

Have Good Credit

The better your credit score is, the better offers you will get from the credit card companies. Be aware that the promotional percentage rates that you see in advertisements are generally for people with the best credit profiles. Expect to be charged more if you have less than stellar credit.

Shop Around

It’s always wise to shop around in order to get the best deal on your balance transfer. Look for long promotional periods, low interest rates and low or no transfer fees. Keep in mind that you should only do business with reputable credit card companies. Remember that if it seems too good to be true, it probably is.

If you have a boatload of credit card debt that you are paying a high interest rate on, you might want to consider a balance transfer. However, you need to make sure that you get the best possible terms on the transfer in order to make the transaction worth your while. Do your homework ahead of time and you can end up saving money and paying down your credit card debt.

How much can you save?

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