Using Balance Transfers to Reduce Debt Load

The term balance transfer refers to the transfer of credit or money from one account to another. Cardholders usually move high-interest balances to low-interest credit cards. Another reason is to consolidate debt. Issuers often offer very low or zero introductory interest rates as a way of increasing their customer base. Cardholders usually use this option to move their balances to a card with airmiles, bonus points, and fewer penalties.


Credit card issuers charge a fee for making a balance transfer. It is usually a flat fee or in the range of 2 percent to 4 percent. Uncapped fees of 4 – 5 percent have become more common. To find out whether you will spend or save money, you should know the balance transfer and annual fee, the interest rate, introductory rate, the amount to be transferred and the current interest rate you pay.

Then, if the bank charges 3 percent, you will pay $165 to transfer a $5,500 debt. Your best bet is to find a card with no balance transfer fee or to negotiate with the issuer. If the bank officer cannot offer a better deal, contact a supervisor – he may be willing to lower the fee. If you regularly charge large purchases to your card, make sure you mention how much business you are worth. If you use your card once in a while, this also works to your advantage. The company will want to keep you as a customer. If your request for a waiver is rejected, you can ask whether it is possible to have the fee capped at $75, $100, or even $120. This is much better than paying 4 – 5 percent of the balance. Of course, whether the issuer will accept your offer depends on the amount you are transferring. One way to have the balance transfer fee waived is to accept a slightly higher rate of interest.

Offers and Terms

Some issuers also send pre-approved offers to borrowers with good credit. While they advertise a low or zero rate, it doesn’t mean that the person qualifies for it. While issuers urge to take advantage of the offer, they rarely explain their products and the benefits of a balance transfer. Some companies offer a zero interest rate during the first 6, 12, or 18 months. This means that every payment made during this period goes toward the outstanding balance. To become debt-free by the end of the year, a borrower with a balance of $1,500 and an interest-free period of 1 year can pay $125 a month. Once the introductory period is over, the card issuer will increase the interest rate. Make sure you are not offered a honeymoon rate, however. Some issuers feature a very low interest rate that skyrockets after the introductory period.

Why Use Balance Transfer

One reason to transfer a credit card balances is to consolidate debt. Consolidation is a way to reduce the minimum monthly payment and pay at a lower interest rate. Borrowers can consolidate multiple bills, making payments more manageable and affordable. In many cases, collection agencies and credit card companies are willing to take off or lower over-the-limit charges and late fees. Moreover, collection agencies and issuers will stop calling. And this is a way to improve your credit score. Borrowers with multiple credit card balances often make late payments and have a low credit score. It is easier to keep track of payments on a single credit card.

When shopping for a balance transfer credit card, make sure you inquire about late fees, interest-free periods, perks, universal default, and other terms.

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