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What is a Credit Card Balance Transfer?
You may have received offers for credit card balance transfers or advice recommending you consider a balance transfer as a way to consolidate debt. Before you consider transferring a balance, there are some things you should know and basic details to consider.
What exactly is a credit card balance transfer?
A credit card balance transfer occurs when you transfer the outstanding balance (or debt owed) from one credit card to another credit card. Typically, you might choose to transfer your balance to a card with a lower interest rate to save money and pay off your balance sooner. Or, you might transfer multiple balances to one card to consolidate debt and simplify your monthly payments.
Every credit card comes with different rules and requirements, but you can often choose to transfer balances from multiple cards and/or certain loans to another credit card – up to the credit limit on that card. For example, if you open a new card with a low interest rate and $10,000 limit, you could transfer outstanding balances from two of your other credit cards at $5,000 each to save money and simplify payments.
When and why might someone transfer a credit card balance?
If you’ve gotten into more credit card debt than you’re comfortable with, or you want to find an easier way to pay back multiple balances, a balance transfer might be worth considering.
When you transfer balances from higher interest cards to a lower interest card, you can save money (potentially thousands of dollars) on interest charges. Transferring can also allow you to consolidate your debt, so instead of having to keep up with multiple payments, you simply make one payment. This can make budgeting a bit simpler.
But it’s not a game – every new credit card can affect your overall credit rating and credit score, so the goal should ultimately be establishing a healthy budget and manageable payments.
What to consider when transferring a balance
When considering a credit card balance transfer, it’s important to understand the details, which can vary from one card to the next. Start by reading the fine print and think about the following:
1. The interest rate on the new card: If the interest rate on a card is close to the interest rate on your current card, it may not be worth it to make the transfer. However, if you’re currently paying 29.99% and you transfer to a card with a rate of 9.99%, for example, the savings will be quite significant.
2. The introductory offer: Many banks and credit unions offer introductory rates on new cards (or balance transfers to existing cards), such as 0% for 12 months. This can be a great benefit allowing you to pay down your balances quicker while you’re not incurring additional interest charges during the introductory period. However, if you can’t realistically pay down your debts in the short-term, it’s also important to make sure the rate after the introductory period isn’t higher than the rate on your current card. Sometimes a steady, lower rate without an intro offer can help you pay down debt slowly over time.
3. The fees: Some banks and credit unions (like Citadel!) offer balance transfers with no fees, while others may charge hefty fees just to move your balance to a new card. It’s also important to consider the annual fee and any other fees that may be associated with the card. You'll need to determine whether or not those fees are worth the long-term savings and other card benefits.
4. Your credit score and history: The credit bureaus (and most lenders) take into account the number of credit cards and loans you have, as well as your utilization rate among other factors, so keep in mind how additional credit cards may affect your credit rating (and your mental health!). Even after you’ve paid off your credit cards, you might consider keeping them open without a balance since your average age of credit contributes to your score as well.
How to get started
Every situation is personal. With so many factors to consider, it may be worth getting some trusted, personal advice before you decide whether or not to transfer a balance. You can always schedule an appointment to speak with the experts at Citadel, video chat face-to-face, or stop by a branch to discuss your situation and see if a balance transfer is right for you.
If you’re ready to transfer a balance to your existing Citadel card, you can get started in Online & Mobile Banking or compare our credit cards to see which one might work best for you.
Want to learn more about credit card debt? Keep reading about credit card traps and scams to be aware of.
