Balance Transfers 101: How to do a Balance Transfer
What is a balance transfer?: A balance transfer is the act of transferring debt from one credit card to a new card that has a lower interest rate. There are two types of balance transfers: limited duration balance transfers and fixed rate balance transfer.
A limited duration balance transfer provides a low interest rate on balance transfers for a specific amount of time. For example, a credit card that offers a 0% APR on balance transfers for 1 year.
A fixed APR balance transfer offers an interest rate that will not change until the balance is repaid or a predetermined time period expires. For example, a credit card that charges a 4.99% interest rate until the balance is repaid. (NOTE: Since November of 2008, no major credit card company has been offering fixed APR for life balance transfers.)
Unfortunately, there is no such thing as a credit card that offers a 0% fixed APR balance transfer for life. This is an urban legend that is probably based on the nightmare of a credit card executive.
How do I do a balance transfer online?: Transferring balances online is a quick and easy process. When you select a credit card offer, you have the option of entering the information from your current credit cards along with your application to expedite the transfer process. However, you may want to wait until your credit card arrives in the mail before initiating a balance transfer, as the credit limit on your new card may not be large enough to cover the balances you wish to transfer. If this is the case, then:
- Transfer balances from your credit cards with the highest interest rates first.
- Consider applying for a second balance transfer credit card so you can consolidate the rest of your high interest balances to a 0% rate.
What is a good balance transfer offer?: In the past, a number of credit card companies offered fixed apr balance transfers and no fee balance transfers. This is no longer the case. Presently, the average balance transfer offer provides a 0% APR for about 12 months. However, some credit card companies do offer 0% balance transfers for up to 15 months or even up to 21 months from time to time. With one of these offers, applicants with excellent credit may get approved for the longest advertised rates. Other applicants may only get a 0% for as little as 7 months, depending on the offer, so always read the fine print carefully.
What are balance transfer fees?: Balance transfer fees are a nuisance charge that, at present, are 3% to 5% of the balance transferred. Over the past two years, these fees have increased dramatically, and most credit card companies will likely continue to charge 3 to 5% fees for the foreseeable future.
How much can I save with a 0% Balance Transfer: Taking fees into consideration, a person with a 14% interest rate can expect to save about $100 in interest for every $1,000 transferred. Thus, a person with $5,000 in debt can expect to save in excess of $500 over the course of a single year.
Plus, if you transfer your balance to a different 0% credit card at the end of the introductory period, you can cut interest expenses out of your life and repay your credit card debt at a significantly faster rate than you could without a balance transfer. For many, having a 0% APR for 1 year can reduce the time it takes to get out of credit card debt by as much as two years.
To get a better estimate of how much you can save with a 0% balance transfer, you can use our balance transfer calculator.
If you’re ready to take action, you can compare current offers and apply for a 0% APR balance transfer on our site.
Have a Balance Transfer Question: If you’d like to know more about balance transfers, please feel free to contact us with your questions.