June 1, 2021What is a Balance Transfer?
You may have a lot of balance transfer offers from credit card companies piling up in your inbox or mailbox, or popping up while surfing the net. Some may seem like junk mail, but if you’re in a financial bind, a balance transfer offer could seem like a lifeline. Now let’s find out if these ads really give you the whole truth.
Balance Transfers Move Debt Between Credit Cards
A balance transfer moves outstanding debt from one credit card to a new one. In exchange for moving the debt to a new card, the card issuer promises an incentive, which may be a promotional or introductory low, balance transfer fee waiver, or bonus rewards of some kind.
For example, a balance transfer card might give you 0% APR on the amount transferred for 12 or 18 months. During this period, you may not pay any interest on the amount you transferred from an existing credit card to the new one.
Balance Transfer Credit Cards Still Have Fees
While saving interest is usually a good thing, these cards rarely come without fees.
- First, many of these credit cards charge a balance transfer fee, which is often a flat fee, or a percentage of the amount transferred. If your fee is a percentage of a large balance, this can be costly. It usually has to be paid or added to the balance at the time of the transfer, with you saving less than you expected.
- Second, the intro or promo rate that gets your attention typically applies to ONLY the amount transferred. If you make new purchases with the card, they can incur high-interest charges.
- Finally, you only get the interest rate benefit if you pay the balance off during the intro or promo period. If you don’t, you’ll at least pay interest on the remaining balance — and sometimes that interest is charged retroactively to the date of the transfer. Even if it’s not, the rate on the new card could be higher than the rate on your current credit card.
Because of these costs, many people never really reap the benefits of balance transfers. Some even end up paying more than they would’ve if they had never taken advantage of the balance transfer.
Consider a Balance Transfer Carefully
Before you just assume that a balance transfer is right for you, consider the shift of debt carefully. Check the specific offer and make sure you understand all the details, especially the rates and fees. Our PEFCU Visa® balance transfer option has no gimmicks. It’s always the same low, non-variable rate for balance transfers, cash advances, and purchases—with no balance transfer or cash advance fees!
We’re Here to Help!
Don’t transfer a balance just because you have financial difficulties. If you’re struggling financially, a balance transfer could worsen your situation. We can explore options together if you experience hardships. Quite often, simply consolidating credit card debt into a lower-rate personal loan helps members pay off the balances faster and pay less interest.
If you are considering a balance transfer offer, even if it’s from another financial institution, please stop by any PEFCU branch or give us a call at 1-800-226-6673. We’ll help you review the offer and give some idea of whether it’s the right move for your unique financial situation.
Each individual’s financial situation is unique, and readers are encouraged to contact PEFCU when seeking financial advice on the products and services discussed. This article is for educational purposes only; It does not constitute legal advice. If such advice or a legal opinion is required, please consult with competent local counsel.