What Are Balance Transfers? Here’s All You Need to Know

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WHAT ARE BALANCE TRANSFERS? HERES ALL YOU NEED
TO KNOW
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Moving your current debt from one credit card to
another is known in finance as a balance
transfer. People usually resort to this
transaction to benefit from lower interest rates
(or other advantages) offered by the new card
provider. Balance transfer credit cards allow
you to consolidate your outstanding debt on
multiple credit cards onto a single one. This
way, you can pay back your debt faster and at a
lower cost. To answer the question What are
Balance Transfers? in greater detail, we have
reviewed their features, as well as their risks
and alternatives.
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0 Interest During The Initial Period

• This is the main reason most people apply for a
  balance transfer credit card. During the first
  10 to 20 months, you wont pay any interest on
  the debt. In this period, you wont add new
  borrowing costs. You will only repay previously
  accumulated debt. The length of this introductory
  period depends on your card provider.

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Normal Interest After The Initial Period.
When the introductory period has passed, you will
pay a normal interest rate on your debt. Based
on the 2021 Consumer Credit Card Market Report,
the APR on credit cards were between 16 and
18 for FICO scores above 740 between 20 and 22
for FICO scores in the 670-739 range between 22
and 24 for FICO scores in the 580-669 range
above 24 for FICO scores below 680
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Balance Transfer Fee
Usually, you have to pay a fee when transferring
your debt from one credit card to another. This
can be between 3 and 5 of the transferred sum.
A fee can be very impactful when you are
transferring large sums. If your outstanding
debt (across all cards) is 10,000, a 3 transfer
fee means a transfer cost of 300. Some
providers dont charge transfer fees because they
hope this will attract more customers. However,
make sure there arent other downsides. Many
creditors offer shorter introductory periods with
a higher interest rate after this period ends.
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Annual Fee
Many creditors that offer balance transfer cards
charge annual fees. There are some creditors
that do not charge annual fees, but fees can run
up to 90 or more per year just for having that
type of account. Provider Generally, its not
possible to transfer balances between credit
cards issued by the same institution. Therefore,
its better to look for new providers when
applying for a balance transfer credit card.
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Is There An Upper Limit For Balance Transfers?
Like any credit card, a balance transfer credit
card has a credit limit. How much you can
transfer from other credit cards is usually a
percentage of this limit. Lets say your credit
card limit is 10,000, and the balance transfer
cap is set at 80. This means that you can only
transfer up to 8,000 from your older credit
cards. If your current outstanding debt is higher
than that, you will have to pay it back some
other way.
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What Can I Do If My Credit Limit Is Too Low?
In this case, the most obvious option is to
transfer the maximum amount possible to your
balance transfer credit card. This would allow
you to benefit from the introductory period for
at least a part of your outstanding
debt. Alternatively, you can ask your new card
provider to increase your credit card limit. As
we mentioned earlier, their approval (or lack of)
will depend on your current income situation as
well as your creditworthiness.
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