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What Is A Balance Transfer?

What Is A Balance Transfer?

Balance transfers are another one to the tools available to individuals for debt management. Transferring outstanding high interest rate debt from one credit card to another can be a effective way to lower you interest rate and pay less on monthly credit card bills. There are terms associated with balance transfers which will determine whether or not conducting a balance transfer is right for you.

Balance transfers are actually quite common because it is in an organizations best interest to get consumers to carry debt with them. Not only will the bank or credit union which receives the balance transfer charge a transfer fee but they will also make money on the balance as most consumers don't pay the balance off in full after the introductory period.

Conducting a balance transfer is a easy as calling the institution you wish to move the outstanding balance to. The second credit card will essentially cut a check to the first credit card company which will make the balance at the first credit card paid in full. That balance will now be applied to the second credit card under the terms of the transfer agreement. Balance transfers can be made at any time but they are most often made to obtain a lower interest rate.

Debt consolidation from multiple credit cards and other loans to a single credit card with a lower interest rate is the most common reason for initiating a balance transfer. The new balance will often come with a promotional period and interest rate of 0% interest for twelve to eighteen months which can dramatically lower monthly payments and interest charges. This can provide an opportunity to pay down the balance and get out from under a large amount of debt.

The only real limitation to balance transfers is the amount of available credit on the credit card you wish to move the balance to. Sometimes the target credit card will not have enough available credit to accommodate all the balances you with to transfer. This is a good time to call the credit card company to see if you can get a credit limit increase. If you have a good payment history and a low overall debt load they will often work with you because they see it as an opportunity to get additional business and future interest payments.

It is not necessary to open a new line of credit like a new credit card or other type of loan in order to participate in a balance transfer. Financial institutions you have an existing relationship will often be happy to work with you as you already have an established relationship and know your credit worthiness. Opening a new credit card may also have a negative effect on your credit report by having more available credit.

Balance transfers are offered by most lenders and are easy to conduct. As with any loan or other financial obligation, it is important to read all the terms and conditions to make sure it is in you best interest. Balance transfer fees and a possible higher interest rate after the promotional period can make a transfer less appealing. If used appropriately, balance transfers can work for you and get you back on the road to financial security.

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