Balance Transfer
BeginnerA balance transfer is moving an outstanding debt from one credit card to another, usually to take advantage of a lower interest rate, often an introductory rate of 0% for a set period.
Many credit card companies offer balance transfer deals to attract new customers. The new card pays off the balance on the old card, and the customer then owes the money to the new card provider, ideally at a much lower rate.
Balance transfers usually involve a fee, often a percentage of the amount transferred. For example, transferring a balance of 3,000 with a 3% fee costs 90. If the old card charged 24% interest, moving to a 0% deal for 18 months could save far more than this fee, provided the balance is paid down during the interest-free period.
When the introductory period ends, the interest rate typically rises to the card's standard rate, which may be high. Any remaining balance will then start building interest.
Balance transfers work best when used as part of a plan to repay debt. Common pitfalls include missing a payment, which may end the promotional rate, making new purchases on the card, which may not be covered by the 0% offer, and running up new debt on the old card.
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