How Does a Credit Card Balance Transfer Work?

A balance transfer works by transferring the balance from one credit card to another. This is usually done to achieve a better rate, better terms or more rewards. People also choose to transfer a balance to avoid finance charges and annual fees.

Most credit card companies offer balance transfers. These offers typically feature low rates, but the rates may only last a short period. This works out well for credit card companies as most people who take advantage of these transfers end up paying more interest over time, as eventually, the low rates expire. Individuals should keep in mind that in many cases, these balance transfers are only offered to those with good or excellent credit scores.

Though balance transfers often look good on the surface, there are some things consumers should watch out for, such as hidden fees and tricky payments. These transfer fees usually come into play for most people. Most of the time, they are around 3 percent of the transferred balance. However, many of them have a cap of around $50 to $75, so individuals are advised to choose one of those offers over others. When it comes to payments, some cards apply any payments to the balance transfer first, then any new balance, so a person may be accumulating interest without realizing it.