How Does a Balance Transfer Work?

If you’ve seen marketing materials for credit cards then you’ve certainly read about balance transfers. But do you really know what the term “balance transfer” means and the potential savings or detriment these could cause? Most credit cards have different rates for cash, purchases and balance transfers.

When getting a new credit card balance transfers are typically offered at lower rates making it more attractive to put a balance on your new card. Some credit cards offer 0% on balance transfers for the first 12 months – but be careful with these promises. There is lots of fine print with these transactions, as an example if the balance transfer is not paid off by the end of the promotional period then you may be subject to the standard rate from the beginning.

By definition balance transfers essentially move money from one card to another. This may be useful to take advantage of promotional rates or to help distribute your credit-to-debt ratio. A balance transfer is not a loan and should not be treated as such. Use balance transfers with caution and plan out your balance transfers meticulously. You can save quite a bit of cash by using balance transfers wisely but make sure to take into consideration any potential impacts these balance transfers may have on your credit.

Always consult a financial advisor before making financial decisions. There may be other products that suit your needs such as personal loansdebt consolidation or even student loans that may be a better option. Always look into the various options – financial products should not be considered off-the-shelf products and should be customized to your needs.