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What is a balance transfer, and can you use it between credit cards?

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    If you're thinking of transferring a credit card balance, a balance transfer can help you do so. Balance transfers are a money-management strategy that can help you save. Keep reading to find out the answers to questions like, “What is a balance transfer?" and more helpful tips on how to transfer a credit card balance effectively.

    What is a balance transfer?

    A balance transfer is when you move outstanding debt from one credit card to another. Balance transfers are typically used by consumers who are looking to move the amount they owe on a credit card to one with a significantly lower promotional interest rate. This is usually done by opening a new credit card account to make this transaction.

    For example, moving your debt to a credit card with a zero percent introductory APR offer on balance transfers is one strategy that could help you reduce or pay off the debt, interest-free for the introductory period.

    A lender may charge a borrower to transfer existing debt from another institution. This balance transfer fee may consist of a percentage of the total amount transferred by the debtor. Many lenders may charge no fees or a low balance transfer fee as introductory offers to attract new customers.

    Balance transfers can affect your credit score depending on a few factors, like if you open a new card to transfer a balance and what you do once your balances have been transferred. If you're constantly opening new cards, for example, this could cause your credit score to drop. If you're moving your balance to one or more of your other existing cards with a lower interest rate, this may not have an impact on your credit score. They may positively impact your credit score if you open a new card with a low APR and try to reduce your debt.

    How a balance transfer works

    Every process for balance transfers is different, but here are a few general steps to take when working with credit card issuers:

    1. Review your current balance and interest rate: Before you start a balance transfer, you'll want to evaluate your current financial situation. Make sure to review your credit card balances and interest rates so you can figure out what your next step should be. You'll want to find a card that can accept the amount you're looking to transfer and has a lower interest rate than what you currently have.
    2. Apply for a card: It's important to choose a balance transfer card that fits your financial needs. You may be interested in a card with a zero percent introductory APR offer on balance transfers. Remember— same-issuer transfers generally aren't allowed.
    3. Initiate the balance transfer: Whether you're completing the process online or over the phone, you'll need to provide information to complete the transfer. This includes the issuer name, the amount of debt you have left to pay off and the account information. Some balance transfers can also be initiated using convenience checks, which allow you to submit payments to a particular person or organization and are charged against your credit account.
    4. Wait for the transfer to go through: It can take several days, or at times, weeks for a credit card issuer to approve your balance transfer. During this waiting period, you should still make payments on your old card until the transfer has gone through. Once the balance transfer is approved, the issuer will typically pay off your old account directly and that old balance, plus the balance transfer fee, will show up in your new account.
    5. Pay down the balance: When your balance is added to your new card, start making on-time, monthly payments on that account.

    What to consider when making a balance transfer

    The potential goal of making a balance transfer may be to save money instead of spending more. Here are a few things to consider when it comes to making a balance transfer so you can meet your unique goals:

    • Pay attention to different APRs.
    • Know the terms of the balance transfer.
    • Look into cards that waive the balance transfer fee.
    • Continue paying the balance on your other cards until the transfer goes through.
    • Be cautious when charging new purchases to your balance transfer card in case a zero percent intro APR doesn't apply to purchases.
    • Remember to make your monthly payments on time.

    Pros and cons of balance transfers

    A balance transfer can be a great option if you are working towards getting out of debt, but you must be careful and aware of the pros and cons, or you can end up in even more debt. If you're considering a balance transfer, some pros and cons include:

    Balance transfer pros

    • You can consolidate your payments. With a balance transfer card, you may be able to combine multiple credit card balances by transferring them. Once the balances are transferred, you can focus on one payment with one due date, making it easier to manage your finances. Interest will apply to any remaining balance that doesn't get paid off within the introductory period.
    • You can transfer your balance to a card with different terms. If your current credit card consists of high fees, you may be looking for a card with better terms.
    • You can get a lower interest rate. If your current credit card has a high-interest rate, these rates can become extremely costly, so transferring your balance to a card with a lower interest rate can be beneficial. With a lower interest rate, more of your monthly payment can go towards paying off your balance instead of towards interest charges. You may be able to pay off your balance in full if you have a card with a long promotional period and you're making high monthly payments.

    Balance transfer cons

    • You may have to pay fees. Many balance transfers will charge a fee, which is typically three to five percent of the amount you're transferring, with a minimum of five to ten dollars. Depending on how much you transfer, you may end up paying a hefty fee just to complete the transaction. In addition to the balance transfer fee, the new credit card could also carry an annual fee.​
    • You may face more debt. Transferring your balance to a new credit card can make more credit available to you. It's important to spend responsibly or you can end up with more debt than what you started with. Having multiple credit cards may lead to more debt if you are tempted to continue to make new purchases after you're transferred a balance to another card.
    • You may need strong credit. Most balance transfer credit cards will typically require good credit or excellent credit scores to apply.

    At the end of the day, the outcome of your balance transfer credit card depends largely on how you use it and how prepared you are for the debt repayment process. Now that you can successfully answer the question “what is a balance transfer?" the next step is deciding if this is a good option for you.

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