Struggling to make a dent in your balance because of high interest credit card rates? A credit card balance transfer can help and potentially give you lower monthly payments, too. Read on to find out what a balance transfer is, how they work and how you may benefit.
What Is a Credit Card Balance Transfer?
A balance transfer is simple: You apply for a new card with a lower interest rate or introductory rate than your current card, then you request to transfer your balance from that card to the new one. In essence, you’re using one credit card to pay off another credit card by getting a lower interest rate.
Why Consider a Balance Transfer?
- Save on interest: Transferring a credit card balance to a new card with a lower interest rate can save you money. Some credit card companies offer a special introductory rate for a transferred balance. You might pay a lower introductory interest rate (or even none at all) for a certain number of months.
- Get more favorable terms: More favorable terms may include lower fees, a better rewards programs or other perks.
- Consolidate your monthly bills: Balance transfers can help make your bill paying simple and more convenient. For example, if you transfer several balances to one card with a lower interest rate, you will only have to make one monthly payment.
- Get a fresh start: A balance transfer is an ideal opportunity to reduce debt faster. Once you’ve transferred your balance, make a plan to pay down your debt during the interest-free period.
Which Credit Card Is Right for You?
Before making a balance transfer, compare cards and choose carefully. Many cards will accept transfers, but a transfer only makes sense if it saves you money. Here are some agreement terms you should look at:
- Annual fee: A card with no annual fee is best for transfers. Consider the following: Will the amount you save in interest be higher than the balance transfer fee? Can you pay off the balance you’re transferring during the introductory 0% interest period?
- Balance transfer fees: Some cards have no balance transfer fees, but 3% to 5% of the amount you plan to transfer is typical. For example, if your balance is $5,000, a 3% fee would cost you $150.
- Interest rate on transferred balances: Some credit cards that offer balance transfers are designed to have a lower introductory annual percentage rate (APR), and 0% introductory APRs are common.
- Interest rate on purchases: If you want to transfer a balance and make some purchases without paying interest on either transaction, choose a card with both a low intro APR on both purchases and transfers.
- Length of the promotional period: A low introductory APR on balance transfers is typically offered for a limited time, so pick one with a long promotional period. When the introductory period ends, the interest rate will go up—you’ll want your balance paid off by then. If you applied for a card with a 0% introductory APR for 12 months, any remaining balance is subject to your standard higher APR after the 12 months end.
How It Works
- Apply and get approved for a new credit card with a lower APR or introductory rate.
- Provide the payee information and account number for the existing card to the new credit card company.
- Indicate the amount you want to transfer from the old card to the new. Balance transfers often come with caps or maximums, so depending on how high your balance is, you may not be able to transfer it entirely. Generally, you can only transfer an amount up to your approved credit limit on the new card, including any balance transfer fee.
- In the meantime, the new credit card company will pay your existing credit card company on your behalf as indicated for transfer. (This process may take up to two weeks.) You now no longer owe that portion of the debt to the old credit card company, as it has been transferred to the new credit card company.
- Keep making payments on your old card until you get confirmation that the balance transfer has been received. If you have any payments due before that time, you’ll want to make them by the due date to avoid late fees.
- Follow up with your new card provider to confirm the transfer was correct and successful.
- Pay your new card by the due date.
What Happens Next?
Once the balance transfer is complete, try to avoid using your old card and leave the account open to benefit your credit score. But, if the old card has an annual fee or you’ll continue spending, it may be better to close the account. Make all payments on your new card on time. Even one late payment could mean an early end to a low introductory rate or having to pay a penalty APR.
We Can Help
Navy Federal offers a variety of credit cards, all with no balance transfer fees. If you're ready to consider a balance transfer, find the card that’s right for you. Call 1-888-842-6328 or visit us to learn more.