Credit Card Balance Transfers Explained
- The purpose of a credit card balance transfer is to move the balance from one credit card to another. There are several different ways that credit card companies accomplish this, depending on the offer. Balance transfers are useful to individual card owners because it allows them to have more control over their finances. Individuals use balance transfers for a variety of reasons including interest reduction and account closing.
- Credit card companies and banks accomplish balance transfers in any of three main ways. One way to conduct a balance transfer is for the credit card company to send money to a person’s account. The person can then use that money to pay off the other credit card. Another way for the credit card company to wire the money directly to the other credit card account. A third option is to send a series of balance transfer checks to the card owner to use to pay off the other card.
- A balance transfer can be very beneficial to a credit card owner. Many credit card companies offer a period of low or no interest when a new card is opened. This gives the card owner an incentive to transfer the money. Some people even transfer money from card to card frequently to prevent every paying a high interest on a balance. Balance transfers are also useful when a person wants to close a credit card account, or when a credit card company lowers the limit on a card. Transferring a balance at this time prevents the necessity of paying an overdraft fee to the other credit card company.
- Although balance transfers provide many benefits, there are also some drawbacks. Usually, the low interest rate lasts no longer than one year. After this time period, the credit card company may start to charge a high interest. If the credit card owner is not watching the interest rate, it could actually cost him or her more in interest payments in the long run. Credit card companies also typically charge a fee for transfers, which also causes the balance on the card to increase.
- A balance transfer is good for many situations, but not every situation. Customers taking advantage of balance transfer offers should watch the credit card, note when the interest rate can increase, and by how much, and either transfer the money again or pay off the balance while the interest is still low. Customers who are unsure they can handle that may be better off keeping the money in its current account to prevent transfer fees.