Updated on October 4, 2023
A balance transfer, in the context of credit cards, refers to the process of moving an outstanding debt or balance from one credit card to another, typically with the goal of obtaining a lower interest rate or better repayment terms.
Understanding Balance Transfer
A balance transfer involves moving the existing unpaid balance from one credit card (the “source card”) to another credit card (the “destination card”). This is often done to take advantage of lower interest rates, promotional offers, or improved repayment options. The primary reason for initiating a balance transfer is to save money on interest payments. By moving the debt to a card with a lower interest rate or a promotional 0% APR offer, individuals can potentially reduce the overall cost of paying off their debt. While balance transfers can offer cost savings, it’s important to note that most credit card companies charge a balance transfer fee, usually a percentage of the transferred amount. This fee needs to be weighed against the potential interest savings. To qualify for a balance transfer, individuals typically need to have a good credit score. The credit card company will evaluate your creditworthiness before approving the transfer. While a balance transfer can offer short-term relief from high-interest rates, it’s essential to have a solid repayment plan in place.