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How to Do a Credit Card Balance Transfer

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How to Do a Credit Card Balance Transfer

To do a balance transfer, a customer agrees to let one credit card company pay off the debt the customer has accrued at another credit card company. Then, the customer pays off the debt, often under better terms, with the company that has assumed the debt. This process is started by calling a credit card company or completing a form online.

What Is a Balance Transfer?

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A balance transfer is an act of moving debt from one credit card to another. Credit card companies are willing to assume a customer's debts that are owed to other companies, as long as the total is within the customer's credit limit. There is usually a fee for a balance transfer.

Many people complete balance transfers to avoid the cost of having a large amount of debt on a credit card with a high-interest rate. Balance transfers are a method of debt management. A balance transfer can consolidate debt or reduce the amount of interest owed on a large debt. By reducing the number of credit cards with open balances, a balance transfer can also greatly reduce the total amount of minimum monthly credit card payments a person owes.

How Do Balance Transfers Work?

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Suppose Albert has a credit card with Company A that has a $3,000 balance and a 25% APR. As long as that debt sits with company A, he will pay high interest every month until he pays off the debt. Albert has another credit card with Company B. He already has a $1,000 balance on that card, but the card is still inside of an 18 month introductory 0% APR period. Albert asks company B to complete a balance transfer of his $3,000 balance with company A. Once the transfer is complete, Albert owes $0 to Company A and $4,000 (the $1,000 balance he already had + the $3,000 balance transfer) to Company B. Albert will not owe any interest to Company B until the 0% APR period is over.

Balance transfers are not free. Most companies charge either a flat fee or a percentage of the transfer amount as a service fee for completing a balance transfer. Many credit card companies increase the minimum monthly payment when a person's balance passes certain thresholds, so a balance transfer can increase the monthly payment that the transferring company charges.

Some companies incentivize balance transfers by offering a 0% APR period on the total amount of the transfer for a certain number of months. During that promotional period, the person will only pay monthly interest on debts that did not come from the balance transfer.

Who Can Do a Balance Transfer?

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Balance transfers are not available to all customers. The ability to complete a balance transfer must be a feature of the credit card. Balance transfers cannot exceed the maximum balance of the customer's card, and some credit card companies set limits on the total amount of a balance transfer. Credit card companies can also limit the number of balance transfers a customer can complete in a certain time period. Customers who have a good credit history and income are given greater freedom with balance transfers.

Some companies allow customers to transfer debts from one person to another. Suppose Albert wants to assume some of his mother's credit card debt. When Albert initiates the balance transfer with his credit card company, he will put his mother's account information into the field for the account that the debt will be transferred from. Depending on policies, Albert's credit card company may require him to make his mother an authorized user on his credit card.

Most credit card companies do not allow customers to transfer debt from one card with the company to another card with the same company. Anyone who wants to complete a balance transfer should keep this in mind.

Steps to Do a Balance Transfer

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The first step to completing a credit card balance transfer is to check the terms of the card you would like to use to complete the balance transfer. Ensure that a balance transfer is allowed and that the limits are equal to or higher than the balance that you want to transfer. Be sure to understand the initial fees and APR that will apply. While some credit card companies waive the APR on a balance transfer for a number of months, other companies may charge a higher APR on transferred debt.

The balance transfer process starts with the credit card company that the customer wants the debt to end up with. The customer either calls a 1-800 number or completes an online application. The customer supplies account information and the amount of debt to transfer. Then, the credit card company completes the transaction.

Do Balance Transfers Count as Payment?

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When a balance transfer is initiated, the company supplying the transfer funds will pay off the amount of the debt on the cardholder's behalf. This counts as payment the same way it would if the cardholder had paid the money. So, a balance transfer counts as a payment, and as long as the balance transfer is made before the payment due date, a customer will not owe an additional monthly payment for the month that the balance transfer applies to.

Do Balance Transfers Hurt Your Credit?

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Balance transfers do not hurt your credit score. Due to the debt consolidation and interest-reducing possibilities of a balance transfer, a savvy balance transfer can actually improve credit score in the long-term if it frees up more of a person's monthly income to pay down debts.

However, many people complete a balance transfer after applying for a new balance transfer credit card with a long 0% APR introductory offer. Applying for a new credit card requires a hard credit inquiry, which will knock down a credit score by a few points. Opening a new line of credit can have a negative impact on the person's age of accounts. Balance transfers do not impact a person's credit utilization rate because it simply moves debt to a new company rather than reducing the amount of debt owed.

A balance transfer can stack additional fees onto a debt that is already hard to pay, or it can reduce interest and the total amount of credit card payments due. It is important to carefully weigh options and read the terms of a balance transfer before making a decision.