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What Are Balance Transfer Checks?

Credit card balances with high interest rates can often make it feel like you're treading water when you make your minimum monthly credit card payment. When the monthly payment due is almost entirely consumed by the interest accrued that month it is in the card holder's best interest to either negotiate a lower interest rate with the current credit card issuer or move their balance to another institution using a balance transfer check. It is important to understand the limitations and fees associated with balance transfer checks to determine whether or not you should use one of these checks in the future.

The typical balance transfer check is what most consumers that receive at one time or the other in the mail and look like standard checks. These types of balance transfer checks are nice because they are often not limited to writing checks to other credit card issuers. They can normally be used to make any type of purchase such as buying a new TV or clothes. When used for the purposes of a balance transfer these checks would be written as if you were making a normal monthly payment only it will be for the balance in full amount. When the check is cashed by your credit card issuer it will zero out the balance and the credit card debt will subsequently appear on the corresponding credit card's balance.

Balance transfer checks, because they can be used for more than just balance transfers, will often have a transaction fee associated with their use. The standard nowadays for credit card issuers is to have a transaction fee of a maximum of 4% of the check amount or a minimum of $10. This transaction fee is what differs from most typical balance transfers between credit card issuers. It is important to understand if you've done a balance transfer in the past that balance transfer checks, due to the convenience and the ability to use them for something other than a balance transfer, is what incurs the additional cost. A more traditional balance transfer will usually offer a 0% interest rate for between 6 and 12 months and waive the balance transfer fee.

Even with the transaction fee however it may be in your best interest to use the balance transfer check with a zero percent interest rate. If you have a $10,000 balance at 17% interest then any amount of interest lower than that, taking into account the transaction fee, will save you money. The additional $400 from the transaction fee will be offset by the amount of interest saved going from 17% interest to 0% interest for a period of 12 months. Once the 12 month period is over and the interest rate on the new credit card reverts to its standard rate it will probably still be less than the 17% you were paying initially. If you have three or four balance transfer checks available at 0% interest for 12 months it can sometimes be wise to consolidate multiple high interest rate credit card balances to a single credit card and make principal only payments for 12 months to get excessive debt back under control.

If used wisely and judiciously, balance transfer checks can be a great tool to consolidate multiple payments into one at a lower interest rate for a fixed period of time. There are usually terms and stipulations associated with balance transfer checks which are important to thoroughly read and understand prior to their use. It is also a bad idea to use balance transfer checks to make additional retail purchases increasing overall debt load. When used for their intended purpose, balance transfer checks can get consumers back on stable financial ground by providing a brief period of time to pay off debt at a lower interest rate.