By Christa Titus
Overview
The invention of the balance transfer launched the trend of "card surfing," where consumers constantly shift their debt from card to card to get the best interest rate possible. The low interest rates that are attached to transfers are a good tool to pay off credit cards quickly and save money on finance charges.
Function
A balance transfer is the act of moving part or all of the balance from one credit card to another. These transactions are also conducted to shift such debts as personal loans, balances from store cards and car loans to a credit card.
Size
How much of a balance you can transfer to your card depends on your available credit on your account. For instance, if you have a $6,000 credit limit on a Discover card, but you already carry a balance of $1,500, you can only transfer up to $4,500 to the Discover account.
Benefits
Transfers are primarily conducted to take advantage of a low, introductory interest rate on a credit card or a special low rate that only applies to transfers. They are also done to consolidate debt so that the card holder has less payments to make every month. Cards that offer points that can be redeemed for goods and services often reward card members points for every dollar they transfer as incentive to shift their balances.
Considerations
When performing a transfer, remember to leave several hundred dollars available on the account for when finance charges are applied. This will keep you from exceeding your credit limit. Also be sure to check what interest rate will be applied to your balance transfer. Do not assume it is the same APR that will be charged to your purchases.
Fees
Balance transfers often come with a "teaser" interest rate of zero percent, 5 percent, 8.9 percent or other low figure to entice people to move their balances. The rate applies either to the life of that balance or for a predetermined time span that tends to run six months to a year. Some banks charge a fee (2 to 3 percent) of the entire balance transfer for conducting the service.
Potential
The ability to consolidate balances onto one card helps people keep track of their spending better, to pay their bill in a more timely manner (since they only have one card to keep track of instead of several) and to save thousands of dollars in finance charges. It can also improve your credit score if you consolidate your debt onto as few cards as possible and close the accounts you have paid off.
Warning
Some banks do not offer a grace period for balance transfers. This means that when the bank accepts the new balance, the debt starts accruing finance charges immediately instead of giving you a 30-day grace period to pay it. More banks are treating balance transfers as cash advances after the card's introductory period expires, which means the transfer balance is subject to a higher interest rate and transaction fee.
What Is a Balance Transfer for a Credit Card? by advancedcreditsolutions.net