Balance Transfer – Explained
A credit card balance transfer is the transfer of the balance (the money owed) in a credit card account to an account held at another credit card company. A balance transfer occurs when a credit card customer transfers the outstanding debt from one credit card to a new credit card. This is logically done from a credit card with a higher APR rate of interest to a credit card with a lower rate of interest. When doing the balance transfer, a customer is frequently looking to save money by paying less interest or to extend the repayment period of the outstanding balance. In this manner, he stretches his time and lessens interest.
This process of balance transfer is aggressively promotes by approximately all credit card issuers as a means to lure new customers. Such an understanding is delightful to the consumer because the new bank or credit card issuer will offer perks such as a low interest or interest-free period, loyalty points or some such other device or a combination of incentives. It is also alluring to the credit card company which uses this process to gain that new customer, and of course unfavorable to the prior credit card company.
An order of payments for every credit card specifies which balance(s) will be paid first. In nearly all cases payments apply to lowest-rate balances first – highest-rate last. Any balance under a teaser rate or fixed rate will be paid off sooner than any purchases or cash advances. By avoiding making purchases or taking cash advances altogether, the borrower can make sure they maintain the full benefits of the original balance transfer.
The process is extremely fast and can be concluded within a matter of hours in some cases. Automated services exist to help facilitate such balance transfers. Other similar services do exist, but they may not be free to use.
For folks who have a balance on their credit card, there are few deals more tantalizing than 0% interest on balance transfers. Why? Because for a period of time, typically six to 12 months, the credit card company is lending you its money for free. That can mean big savings on interest charges for those with revolving balances.