A credit card balance transfer is when you transfer the amount you owe on one credit card over to another credit card. The original balance is either reduced or paid off, and a new balance is created on the second card. If you have balances on credit cards with high interest rates it is sometimes advantageous to apply for a new credit card and perform a balance transfer to save on finance charges. However, before you make your final decision there are several things that you need to be aware of.
Credit card balance transfers make the most sense when you can get a very low or zero APR credit card. Before you apply for low interest rate cards you should order your credit report and check your credit score. You will need to have a decent credit score in order to qualify for the best rates.
One thing you need to look out for are introductory rates. Some credit card companies will offer introductory rates on both balance transfers and purchases, but once the introductory period is over your interest rate goes up. You need to carefully read the terms and conditions for all credit card offers you are considering.
You also need to check to see what types of fees may be involved with the new card. There could be fees on balance transfers as well as other fees such as an annual fee. The fee on the balance transfer might be a flat fee, a percentage of the amount that is transferred ,or it could be a combination of these two. It is important to factor these fees in to make sure they do not outweigh the savings in finance charges. Otherwise, it will not pay to transfer your credit card balance to a new card.
Another thing that is important to understand is that credit cards usually have more than one interest rate associated with them. There could be different interest rate charges on purchases, over the limit fees, and late payment fees in addition to the rate on balance transfers. These other interest rates will usually be higher than the balance transfer rate. If your primary reason for getting a new card is to save on interest charges on your credit card balance, the best thing to do is to only use the new credit card to make the balance transfer and then concentrate on paying it off rather than using the card for new purchases. The whole point of making a credit card balance transfer is to help you save on interest charges so that you can pay your debt down faster.