How do Balance Transfer Credit Cards Work?- One of the most commonly asked questions by credit card users is about balance transfers. Before diving into details such as the balance transfer fee, pros, and cons of the process, etc., let’s first understand what exactly Credit Card balance transfer is.

What is Credit Card Balance Transfer?

A credit card balance transfer simply works by transferring the outstanding debt on one of the credit cards you own to a new one. This option is commonly used by cardholders who wish to move the amount they owe onto a new credit card that offers-
• Lower interest rate
• Fewer penalties
• Other perks such as rewards points

The main objective of transferring a balance is to save money on interest, especially in case of the promotional APR transfer applications.

Understanding the Balance Transfer Fees

It is, important to note that making the switch from a high-interest rate to a low-interest rate isn’t simple as the move that comes with a balance transfer fee. The more the amount transferred to the new credit card, the higher the total fee.  Learn about Balance Transfers 101.

Here is how the balance transfer fee is calculated-
• The credit card balance transfer fee is determined as a percentage of the total amount getting transferred.
• In most cases, the balance transfer fee on the credit card is somewhere in the range of 3-5%.
• Earlier the credit card transfer fees were capped; however, right now, the condition is no longer applicable to most cards.
Credit card balance transfer isn’t possible if the new credit card account is of the same company as that of the card whose balance one wants to clear off. For example, one cannot transfer a credit balance from one Barclay’s credit card to another.

Pros and Cons of Credit Card Balance Transfer

Although lower interest credit balance transfer offer sounds like a great opportunity, it is essential to weigh all the pros and cons of the balance transfer before taking the decision.

Pros
• The advantage of a lower interest rate: For someone having a high-interest rate on an existing credit card, transferring the balance to one with a lower interest rate is a great opportunity to pay off the credit card debt.
• Consolidating the credit card debt: In the long run, it is always better to have fewer credit card bills to pay. Balance transfer gives a great opportunity to consolidate the credit card debts.

Cons
• Higher expense on balance transfer: It is important to note that the balance transfer fee and the annual fee of the new credit card combined can make the credit card balance transfer can prove to be an overall expensive option.
• Affects the credit score: Balance transfer means that you are applying for a new credit card account that can affect your long-term credit score.

The decision of availing the credit card balance transfer is a tricky one. You have to consider whether you will be able to save money and pay off your credit card balance faster with the move before making this decision.

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