Credit card balance transfer

A credit card balance transfer is the transfer of the balance (the credit left) in a credit card account to an account held at another credit card company.

This process is actively encouraged by almost all credit card issuers as a means to attract new customers. Such an arrangement is attractive to the consumer because the new bank or credit card issuer will offer incentives such as a low interest or interest-free period, loyalty points or some such other device or combination of incentives. It is also attractive to the credit card company which uses this process to gain that new customer, and of course detrimental to the prior credit card company.

An order of payments for every credit card specifies which balance(s) will be paid first. In nearly all cases payments apply to lowest-rate balances first - highest-rate last (however some countries, like Australia and Germany, require that payments are applied to the highest-rate balances first). Any balance under a teaser rate or fixed rate will be paid off sooner than any purchases or cash advances, which usually have the highest . By avoiding making purchases or taking cash advances altogether, the borrower can ensure they maintain the full benefits of the original balance transfer.

The process is extremely fast and can be concluded within a matter of hours in some cases. Automated services exist to help facilitate such balance transfers. Other similar services do exist, but they may not be free to use.

Decisions on whether or not a card holder decides to transfer one's credit card balance depends on a combination of three things:

This is the normal on a credit card. The lower this rate, the better for the consumer and the worse for the credit card company . The transferred balance will be subject to same rate as the card's purchase rate. Occasionally the same terms will apply as to purchases that may be interest free until the payment date for the statement on which the transfer appears. More often such transferred balances move immediately to the full purchase rate. Credit card balance transfers involving transfer of funds from a high credit card or a store card to a low- or zero-APR credit card will result in a reduction in monthly for the card holder.

A is an especially low rate that a credit card company offers to new customers to entice them to transfer their balance. It is a lure for catching new customers. With an extra low initial rate, transferring customers have lower than normal which ultimately means lower initial monthly outflows of money to the credit card company. The 0% rate is the most common when a new credit card account is opened.

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Wikipedia