How Do Balance Transfers Work?

Man using calculator

If you’ve ever wondered “how do balance transfers work,” you’ve come to the right place! Many people have at least heard of balance transfers, but not everyone knows what the process entails. Aptly named, balance transfers are a solution designed for credit card debt, in which the debt you hold on a high-interest card(s) is moved over to one new, lower-interest card. In simpler terms, the balance is transferred. Explore everything you should know about balance transfers before moving forward with one, below.

Know Before You Go

Before you move forward with a balance transfer, it’s important to remember that this isn’t a way to make your debt disappear immediately. Rather, it is meant to make your debt more manageable to pay off. You should be able to secure a lower interest rate on your new payments, and you might even manage to pay off your debt faster.

Is There a Cap on Balance Transfer Amounts?

Yes, just like any other credit card, balance transfer cards come with a credit card limit. Depending on your lender, you may only be allowed to transfer a certain percentage of that limit. This means there’s a possibility you’ll be offered a balance transfer card that you can’t transfer the entirety of your debt onto. In these instances, experts recommend that you transfer what you can, and continue working to pay off what’s leftover on your high-interest card(s) while also paying off the new balance transfer card. If you make timely payments, your lender may agree to raise your limit, allowing you to transfer more of your balance over.

Balance Transfer Fees

Most of the time, there are fees involved with balance transfers. Three percent is the average balance transfer fee, so if you were transferring $5,000 over to your new card, you would also incur a $150 fee right away.

Zero APR Offers Have a Shelf Life

Many balance transfer card lenders offer very little or even zero APR on their cards. An attractive offer, sure, but you should know that it won’t always be this low. Depending on the lender, it could be six months, one year, or more before that rate expires, but when it does increase, you could end up with an interest rate that’s even higher than the one you had before the balance transfer.

Check Your Credit Score Before Applying

These days, balance transfer cards are not typically granted to applicants with bad credit. Applying for a balance transfer will require a lender to do a hard credit check, and if your score is already low, this will temporarily knock it down even more. So, before you apply, it’s worth checking your score. If it’s already low, you may want to work on raising your score or consider other options rather than applying and causing your score to get even lower.

Learn More With Xpress Cash!

If you need additional advice on balance transfers, like how they affect your credit score or how they differ from cash advances, don’t hesitate to consult with the experts at Xpress Cash. We have multiple locations across Michigan, Wisconsin, and Idaho, and we’re always happy to help. Contact us today to learn more or to ask about our quick loan options.