What to Expect When Transferring a Credit Card Balance
If you’re like many Americans, you’ve probably received a credit card offer in the mail and thought, “Sure, why not?” The interest rate might be exorbitant, but you figure you’ll use the card only sparingly. The next thing you know, you’re pushing up against your credit limit and paying a king’s ransom in interest. A credit card balance transfer moves the amount you owe one lender to a new card with another lender that is typically willing to charge you less interest. However, there are a few catches, so it pays to know what to expect going in.
How to Transfer a Balance
First, check your credit score. A balance transfer may not even be an option if your credit is weak. Bankrate indicates that you’ll probably need a score of about 750 to qualify for the best “teaser” rates – the introductory rate you’ll pay on the new card for a while as you whittle down your balance.
Next, contact your bank or credit union to see if it offers attractive terms for balance transfers. If not, you may be left with only those offers you regularly receive in the mail. Read all the fine print and comparison shop before you leap.
It’s possible that your existing debt will exceed the credit line the new lender is willing to offer you, particularly if you want to consolidate multiple balances. In this case, you might want to take advantage of more than one balance transfer offer or try negotiating with the original lender to reduce your interest rate so it won't lose the account to another company.
After approval, you’ll have a limited period of time, usually about 60 days, to make sure your balance is moved from one lender to the other. Keep paying on the original balance until the transfer has gone through – you still owe this lender until the transfer is complete.
It’s Not Free
Expect that the new lender will charge you a fee for transferring the balance, usually about 3 percent of the total amount transferred. Make sure the fee is less than the additional interest you’d pay if you left your balance on the initial card. Some lenders also charge an annual fee for the new credit card.
The Introductory Period
Companies in the business of offering balance transfers usually charge you a negligible interest rate or even no interest at all for a period of time. When this period expires, you could find that you’re being charged more in interest than you paid to your initial lender. Under federal law, the introductory rate must last at least six months. Some lenders are more generous.
If you make new purchases on your new card during this time, you’ll have to pay a higher interest rate on this portion of your balance. And, payments are typically applied first to new purchases.
Making the Minimum Payment
Another potential pitfall exists if you fall behind on your payments to the new lender. This often hikes up your interest rate to the post-introductory rate immediately. You might even find yourself stuck with an even higher “penalty” rate. Minimum payments are usually set at a percentage of the balance you’ve transferred.