A credit card balance transfer is an offer made by credit card companies to entice customers to open a credit card with them.
The concept of a credit card balance transfer is relatively simple. A customer who may have a debt with a number of credit cards may find it hard to budget and juggle monthly payments because different credit cards will have different payment cycles and also different interest rates. A credit card balance transfer is a feature where a customer can decide to transfer all of the credit card debt to one credit card. The credit card company that offers the credit card balance transfer will pay off all of the customer’s credit card debts. In effect, all of the debts are transferred to just one credit card. This makes it easier for the customer because he will only have to remember paying one company and there is only one interest rate to contend with. The credit card company may give the customer grace period, during which the company may offer a lower interest rate, or maybe even totally remove the interest rate. A credit card company earns from the credit card balance transfer through the interest rate they will impose on the consolidated debt.
A credit card balance transfer is a great way of reducing a person’s debt with credit cards. It gives the person a respite from the monthly interest charges that further add to the debt. A common tactic used by some people is to open a new credit card account that offers credit card balance transfers when the old one’s offer expires. In this way, they can continually take advantage of the no-interest or low-interest grace period and, thus, gain headway in cutting down the total amount of debt. However, opening too many credit cards has a detrimental effect on your credit score. And failing to make a monthly payment can have high interest consequences. So be careful.
The two things to pay attention to are whether there is a balance transfer fee and how long the interest free or low interest term lasts. Often times the balance transfer fee is 3%.