Balance transfer in credit cards means that the amount/loan owed on one credit card is transferred to another credit card, i.e., amount owed on the first card is cleared off and the same amount will now be owed on the second. Balance transfer offers like lower interest rates, fewer penalties, benefits like reward points, and travel miles are some of the common reasons for consumers choosing to move the outstanding debt from one piece of plastic to another. Such offers make the balance cheaper to be paid back or enticing to move to the second card which usually a new one. This process may be for free or charged with a transfer fee (typically a percentage of the transfer amount) to complete the process depending on the card company. The balances can be from store credit cards, gas cards, or any other credit cards, and the transfer can be either a part of the loan/debt or in whole, depending on the need and conditions. It can be a good way to slow down the payments and take stock of the debts one owes through his credit cards.

While deciding on what card to choose, looking at the different balance transfer offers given by credit card companies may be of some help to take advantage of the incentives to avoid high interest rates.

• Free balance transfers, i.e., transfer fees will be waived off
• Promotional or introductory period offers with zero interest on the transferred sum. Federal law requires such offers to be a minimum of six months and the offer period can go up to 21 months.
• Cashback in rotating categories

Benefits of availing balance transfer offers

• With the lower interest rate, it can save money paid on interest.
• With lower interest rates, one can primarily focus on paying the principal amount eventually paying down the overall debt faster.
• With balance transfer offers having time limitation, an individual can catch up on paying the debts faster to utilize the benefits of the offers.
• It becomes easier to keep track of payments to multiple creditors on multiple due dates by consolidating the payment of all debts onto a single card that provides balance transfer offers.
• It is not required for the balance to be in the name of the individual applying for it. A spouse or a dependent who is paying high interests on their credit cards can use the balance transfer offers on that individual’s card to pay off their debts easily.

Limitations of balance transfers

• The balance amount that can be transferred from the existing card is restricted to the credit limit on the new card. Thus, if an individual has an outstanding debt of $600 on the existing card and the credit on the new card is limited to $500, then he/she can avail the balance transfer offer only for $500. He/she will still have to pay a high interest rate on the remaining $100 and keep track of payments done on two credit cards now.
• Some credit card companies may charge a balance transfer fees—usually 3%–5% of transferred debt—which is now a new amount added to the debt transferred on the new card.
• The low interest rates are applicable only on the transferred debt. For any new purchases made with the new credit card, one might have to shell out higher amount on interest. In some cases, these new rates may be higher than the rates on the older card.
• The offers are limited only to a certain period. If the planning of payments is not done properly, one might end up paying even higher amount on interest that shoots up after the offer period.
• Payments on the older card still needs to be made during the transfer period of one to two weeks. If the transfer rates and fees are not clearly understood, one might end up paying more on transfer fees.
• The introductory rates may get invalidated on late payments and thus damage the credit scores.
• A balance transfer cannot be performed if the old and the new credit accounts are both with the same company.

Things to know before making a balance transfer

• On the basis of credit limits of the new card, choose those older cards that have larger outstanding debts with higher interest rates first.
• Ensure that excess amount is not paid toward transfer fee in the event of getting tempted by a lower interest rate on the new card.
• Missing a monthly payment or making a late payment, going over the credit limits, check bounces etc. may all lead to very stringent and high penalties.
• Understand the validity of the promotional offers and the interest rates post that period.
• The balance transfer offers will be applicable only if the transfer is done within a stipulated time. Hence, it is important to know what the time limit is and ensure the transfer is completed within that period.
• Having a history of a payment due or bankruptcy may make availing the offers difficult.
• An individual should know whether the balance transfer funds should directly go to another creditor or be deposited to his bank account before paying off the debts.
• Balance transfer with the new creditor can be done through checks, through online or phone transfers or through direct deposits depending on the discussion between the creditor and the individual
• Don’t completely rely on websites that rate or promote credit card balance transfer offers since there is a high possibility that these websites are paid by the company to promote their products.