Using balance transfer to save money

What is balance transfer?

If you already have more than one credit cards, you can transfer your existing balance on one card (call it 1st card) to the another credit card (call it 2nd card). Effectively, the 2nd credit card issuer will assume the outstanding debt that you owe the 1st card issuer by paying it off. You will then be billed by the 2nd card issuer for it.

Transferring your credit card balance to a lower interest rate card could save you money. However, the process is a little tricky. Read and understand the fine prints before you proceed - there are a lot of possible fees and 'catches' that could arise. If you are not careful it can end up costing you money. Different credit cards have different rules in handling balance transfer so don't assume you could do it on another credit card just because you did it with one card.

This being said, it is still possible to save money with balance transfer - you need to do it smartly and wisely.

Important questions

If you do not transfer to a fixed rate (or even if you do because fixed doesn't mean fixed forever) there are three figures of prime importance -- the rate you are getting, how long it lasts and what it jumps to when that rate is over. With a fixed rate you may not know when it will change, but there will at least be a guaranteed period before it can change.

After you have those numbers, check out all of the related costs:

• Do I transfer to a fixed or introductory rate? When and how will it change? 
• Is there a fee for moving the balance form either credit card?
• If there is a fee, is it a percentage or a flat sum?
• What is the rate and fee for new purchases for the 2nd card?
• How long does the transfer take?

More things to watch out

'Tiered' rate arrangements - you get zero or low interest rate for a period, and then you get another rate for some time, followed by a third or even a fourth rate arrangement. 

There may also be different rates for news purchases with the 2nd card too. 

Some card limits the amount, or the number of balance transfer.

Think twice if you are not sure if you can pay off the balance in the low rate period. Use our Payment Calculator and work on a realistic senario.