How do Credit Card Balance Transfers Work - CCCU
Wednesday, May 26 CCCU
How do Credit Card Balance Transfers Work?
Credit cards can be useful tools, and they're an important aspect of your overall financial wellness. However, while some lines of credit offer spending rewards, carrying high balances
is usually considered "bad" debt. The interest rates are often high, and consumer debt doesn't typically benefit your finances in the long run. (Examples of "good" debt include home loans, student loans, and business loans.)
Ideally, you want to be paying down your balances quickly and with as little interest as possible. This is where credit card balance transfers come in. If you're interested in this debt consolidation option, our Portland credit union is here to assist. Here's a detailed rundown on balance transfers, including how to figure out if it's the best choice.
What to know about balance transfer credit cards
Balance transfer credit cards are used to roll multiple high-interest accounts into a single low-interest balance. The idea is to have only one monthly payment
and minimize the amount of interest you pay. All that said, you'll need to carefully assess the fine print, including information about the introductory period and a balance transfer fee.
A balance transfer credit card will typically have a low or 0% interest rate for an introductory period (sometimes called a grace period or a promotional period). Intro periods generally range from 90 days to 18 months
, after which you can expect the APR (annual percentage rate) to increase.
Credit unions like CCCU often offer credit cards with lower-than-average interest rates, even after the promotional period. Having said that, you can expect the interest rate on most other credit cards to spike significantly after the intro period.
For this reason, it's in your best interest—pun intended—to pay off the entire balance within the grace period. That way, you'll pay as little as possible and potentially even $0 in interest after rolling your credit card balances onto the new card.
Balance transfer fees
Depending on the lender, you might be charged a balance transfer fee. This is usually somewhere between 3% to 5% of the total transfer amount, which can add up. However, many banks (including CCCU) offer 0% balance transfers so long as they're completed within a specified timeframe.
How balance transfers work
As long as you have a clear idea of the interest rate, introductory period, and any associated fees, the process is relatively simple. Once you open a balance transfer credit card, there are a few ways to actually complete the transfer (or transfers).
Online balance transfers
In some cases, you can transfer your existing credit card balances online. This is less common for security reasons, but it might be possible if the new card is with the same lender as your other cards.
Over-the-phone balance transfers
You should be able to complete your transfers over the phone. In this case, you'd call the credit union, bank, or credit card company for your new card and give them the account information for the cards you wish to consolidate. They'll take your info and arrange for the transfer
. The process usually takes anywhere from a couple of days to a few weeks.
Some card issuers offer balance-transfer checks for the amount to be paid off. You'd make the check (or checks) out to your existing credit card company (or companies). Then you'd only be responsible for paying off the balance on the new card.
Should you consolidate your debt with a credit card balance transfer?
Bear in mind a balance transfer credit card is not a get-out-of-debt-free card—you still have to be diligent about making payments. It can also be helpful to know how your credit score comes into play and how to make the most of the grace period.
Your credit score
Opening a new credit card can make your credit score dip temporarily. This is because 15% of your score is based on the average age of your credit accounts.
On the other hand, consolidating your debt into one card would show that your existing accounts are paid in full. Plus, the money you save on interest can help you pay off your new balance quicker, which would give your credit score a boost.
Making the most of the grace period
After transferring your balances, you'll be responsible for making at least the minimum monthly payments on your new credit card. While there's nothing wrong with paying only the minimum amount due
, you'll most likely owe a substantial balance after the introductory period.
The remaining balance will be subject to a higher interest rate, which you really want to avoid. Your best bet is to pay off the entire balance during the grace period to avoid paying more interest on our credit card debt.
0% balance transfer cards from our Portland credit union
The best balance transfer cards have very low or 0% interest for the introductory period, like the Visa credit cards from Consolidated Community Credit Union in Portland. As long as you transfer your balances within 90 days of opening the account, we don't charge any transfer fees. Plus, you can get a 0% APR for the first 12 months
Apply for a credit card from CCCU today or get in touch with us to learn more about debt consolidation.