What Are Balance Transfers & How Do They Work

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Today’s guest post comes to us from Jeff Weber. Jeff writes about saving money with balance transfers at www.smartbalancetransfers.com/blog, a site designed to help people find the best money saving balance transfer offers.

What Are Balance Transfers & How Do They Work

There are two types of credit card balance transfers: those with introductory offers and those with fixed rates for life.  

An introductory offer transfer means you will receive a 0% or a low interest rate on the money transferred to the card for a limited period of time.  You will commonly see 0% balance transfer offers for 12 months, for example.  A fixed rate balance transfer provides a specified interest rate on the money transferred until the balance is paid in full.  Fixed rate balance transfers are currently not available due to economic conditions, so if you are looking to do a balance transfer, you will need to seek out a card with a low short term rate.

Choosing a Good Balance Transfer Offer

Right now, the best type of balance transfer offers provides 0% interest on the transferred balances for 12 months to as long as 24 months and charge 3% transfer fees. Some credit cards advertise 0% interest for “up to 12 months”; but these offers should be avoided because if you do not qualify for the full 12 months, you could find yourself with only six months of 0% interest. As with any credit card offer, the devil is in the details, so be sure to review the fine print before you being filling out the application.

How To Transfer Credit Card Balances

Once you find a good balance transfer, it’s quite easy to set up.  When applying for a new card offering 0% interest on balance transfers, you can enter the information from your current credit cards directly on the application.  If your application is approved, the credit card will be issued in your name and the balances from the credit cards you included on the application will be transferred to the new card automatically. This can take anywhere from a week to a month, so be sure to continue paying your high rate cards until the transfer clears.

If you are not approved for a high enough credit limit to transfer all of your credit card balances, first transfer balances from your credit cards with the highest interest rates.   If you have good credit, you may want to consider applying for another balance transfer credit card to consolidate the rest of your higher interest credit card debt. Applying for multiple cards can have a negative impact on your credit score, so take this into consideration, especially if you will be applying for a car loan or mortgage soon.

How Much Money Can Be Saved With a Balance Transfer

Carrying $3000 of credit card debt can be expensive. At a 15% interest rate, it can cost you almost $450 a year. By transferring that debt to a 0% credit card, you can save that money. However, because of standard 3% balance transfer fees, your total savings will likely be closer to $300. Despite these fees, a balance transfer can still save you a lot of money.

How much you save after the first year will depend on what your new interest rate is beyond the introductory 0% period.  Ideally, you will choose a balance transfer offer that has a lower interest rate after the introductory period than you are currently paying on your credit cards.  Alternatively, at the end of the 0% introductory period, you could begin looking for a new 0% balance transfer offer to move the remaining balance again so you can continue making interest-free payments on the debt until it is fully repaid.

How about you all? Do you have credit card debt? Have you ever used balance transfers to help diminish the balance you owe? If not, why? Share your experiences by commenting below!

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***Photo courtesy of http://uk.creditcards.com/credit-card-news/images/balance-credit-cards.jpg

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