When you make a credit card balance transfer
, you transfer the balance from one credit card to another. Balance transfers can end up being costly, if they're not done right or done using expensive credit cards. So, before you transfer a balance or even sign up for a balance transfer credit card, answer a few questions.
Is there an introductory interest rate?
A lot of credit cards offer low or zero percent introductory interest rates for balance transfers. The introductory interest rate
will reduce or eliminate monthly finance charges on your balance transfer for a certain period of time. The absence of a finance charge makes it easier for you to pay off the credit card balance.
How long is the introductory period?Typically, introductory rates last from six months to a year. A longer introductory period will give you more time to pay off your balance without receiving the full finance charge. Credit card law states that introductory period must last at least six months.
What's the APR after the introductory rate expires?
Ideally, you want as low an APR
as possible. Knowing your APR will increase after a few months should be motivation to pay off your balance sooner. Make sure you understand if the balance transfer APR will be different from the purchases APR (it usually is).
Does the introductory rate apply to balances transferred or purchases (or both)?A lot of credit cards apply one interest rate to transferred balances and another to purchases. Sometimes there's a third APR for cash advances. If the card applies different interest rates to different types of balances, understand which type of balance receives the intro rate and which receives the regular rate.
Do you qualify for the introductory rate?Don't assume that because you receive an offer for a zero percent interest rate that you'll qualify for the rate. The interest rate you ultimately receive will depend on your credit history and may end up being higher than you expected if your credit isn't in the best shape.
Are there balance transfer fees?
Even when you have a low introductory rate on your balance transfer, you might still be assessed a balance transfer fee
. This might be a flat fee or a percentage of the balance you transfer. The credit card might waive fees for initial balances transferred, but charge a fee for subsequent balance transfers.
What is the default rate and when does it take effect?
The default rate
is the highest interest rate charged by the credit card company usually as a penalty for late payments or an over-the-limit balance. Find out the amount of this interest rate and any actions that might cause it to go into effect.