Financial Education

What is a balance transfer credit card in economics and investing?

Are you looking for a balance transfer credit card? Find out everything about what is a balance transfer credit card and its benefits in this post!

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by Victória Lourenço

Published on 12/12/2021

Find out everything about what is a balance transfer credit card here

Find out everything about balance transfer credit cards! Source: Unsplash.
Find out everything about balance transfer credit cards! Source: Unsplash.

A balance transfer credit card allows the cardholder to transfer an existing balance from one credit card account to another. Cardholders usually do balance transfers to get lower interest rates or more favorable terms on debt. However, you can also do balance transfers for other purposes, such as consolidating multiple balances into just one. So, in this post, we will talk more about what is a balance transfer credit card in economics and investing.

Also, as much as making a balance transfer seems like a good idea, it might be a bad one in some cases. If you already have a bad credit history, you might not be able to get the best interest offers. Moreover, you need to do a lot of research before applying to get a balance transfer credit card. This way, you will be able to get the lowest fees possible for your situation.

Moreover, there is some other important information regarding the use of balance transfers to pay lower interest fees and invest. Therefore, keep reading this post to learn more about the pros and cons of getting a balance transfer credit card. Also, find out if this is a good idea for your current situation.

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What is a balance transfer credit card? Some examples!

Learn how balance transfer credit cards work! Source: Unsplash.
Learn how balance transfer credit cards work! Source: Unsplash.

The general idea of a balance transfer credit card is that you can use it to transfer your balance from one card to another card. You may want to do this for many reasons, and one of them is that you can transfer to a card with intro APR periods. Some balance transfer credit cards have intro interest rate periods. These introductory interest rates can be as low as 0% or at least lower than the interest you would pay on your current card.

For example, if you have a $2,000 balance on your current credit card and you will have to pay an interest rate of 20%, you can transfer that amount to another card. Then, once you transfer from the current card to the balance transfer card, you will get the chance of paying less interest or even zero interest. However, you need to consider the balance transfer fee that many cards charge.

Therefore, the balance transfer credit card company will charge a percentage of the balance you will transfer. Usually, this fee is around 5% of the balance transfer amount. This can be a bit of a downside to transferring your current balance to your new card. However, this percentage can be a lot less than the interest amount you would have to pay on your current credit card.

So, to help you find a credit card with good balance transfer options, we made a list of three great balance transfer credit cards.

1. Citi Simplicity® Card

With this card, you can get a 0% intro APR for 21 months on your balance transfers. Also, this card has no annual fee. Moreover, your balance transfers need to be made in the first four months from account opening. After that, you will be charged an APR ranging from 14.74% to 24.74%.

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2. Chase Freedom Unlimited®

This credit card charges a 0% intro balance transfer APR for the first 15 months from your account opening. However, there is an intro fee of $5 or 3% of each transfer amount. Also, you need to make your transfers within 60 days from your account opening. Plus, there is no annual fee!

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How to apply for the Chase Freedom Unlimited®

The Chase Freedom Unlimited® credit card is a good choice if you want cash back on purchases. See how to apply for it now!

3. Discover it® Balance Transfer

With this Discover it credit card, you can get a 0% intro APR for 18 months from your first transfer. However, there is a fee of 3% of each transfer amount available for the current offer until March 10, 2022, with a 0% APR period.

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Is it a good idea to do a balance transfer?

Find out if you should do a balance transfer! Source: Freepik (jcomp).
Find out if you should do a balance transfer! Source: Freepik (jcomp).

You will need a very well-structured plan before you decide to make a balance transfer. It can be quite exciting to think that you can transfer your current balance with interest to another card and pay no interest for up to 18 months. However, if you do not plan well, you may have to pay even more money. This is because many people just forget that they will still have to pay the balance.

Therefore, once you make a balance transfer, you will have to follow a plan to pay the total amount owed before the intro period ends. This way, you won’t have to start paying the interest again once the intro period ends if you haven’t paid the full balance amount on the balance transfer credit card.

Moreover, if you have a plan to earn more money and improve your finances during the intro period on the new balance transfer card, then it can be a good idea. However, if you just think you can think about it later, it can be a bit tricky to make a balance transfer. So, we recommend that you always have a well-made financial plan before you think about getting a balance transfer credit card.

In addition, it is very important that you read the terms and conditions of the balance transfer credit card. Especially, if you decide to get a balance transfer card with a 0% intro period. This way, you will avoid getting any surprises. With some cards, you might have only a 60-day period to transfer your balance with a 0% interest. Also, there might be offers of 0% balance transfer fees, but you will need to transfer within 60 days as well.

Also, be aware that some cards that have 0% interest intro periods have some other requirements. For example, one of these cards may require the payment of the full balance within the intro period. Read the terms so that you don’t have to pay more interest. So, here are three two main tips for you to make the best of a balance transfer credit card.

Make a good plan

Before you decide to transfer your current credit card balance to another card, be sure to have your finances planned out properly. Also, remember to pay the monthly minimum of the balance transfer credit card bill. This is very important because, with some cards, you might lose the lower interest rate if you don’t pay the minimum.

Pay-off your balance before the intro period

This tip is so important because some people do not consider that they still have to pay the balance. Therefore, even if you transfer your balance, you will have to pay the full amount within the intro period. In some cases, you can only make the minimum payments and don’t pay the full amount until the intro period ends. However, you might have to pay even higher interest if you do this.

Do balance transfers hurt your credit?

Getting a new credit card to transfer your current credit card balance might affect your score in some ways. For example, your credit utilization may be affected. A credit utilization factor means how much of your credit limit you are using compared to the credit amount you have available. Also, another factor that may affect your score is the fact that you opened a new account. Usually, your credit score considers how long you have a credit line.

Moreover, another very important factor is the application process for the new card. During this application process, you might get a hard credit inquiry, and this can really impact your score.

And if you want to learn how to improve your finances, check out our post below with 10 easy personal finance tips!

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Personal finance tips to improve money management

If you want to improve your money management, we have separated ten personal finance tips just for you. Come with us!

About the author

Victória Lourenço

Victória Lourenço is part of the finance writer team for The Mister Finance website. She is a translator and copywriter, having worked on finance topics for over four years. She has a goal to keep studying finances to help people learn more about how to use their credit cards, make loans, and use other money-related products in a way that they can find a more meaningful and healthy financial life!

Reviewed by

Aline Barbosa

Senior Editor

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