Balance transfers could be a helpful way to save on interest charges while you work toward becoming debt-free. However, there can be some confusion as to how your old credit card processes the balance transfer.
Does a balance transfer count as a minimum payment? Or does your credit card process it a different way, leaving you stuck making your minimum payment on any remaining balance?
Below, we’ll explain how your credit card will process the balance transfer and whether or not it’ll count as a minimum monthly payment. But first, we’ll take a high-level view of what a balance transfer is and how it works.
A balance transfer is when you transfer credit card debt from one card to another. The card you transfer to — typically referred to as a balance transfer credit card — issues a payment to your old credit card and adds a 3-5% balance transfer fee to the transferred balance.
Balance transfers aren’t always beneficial, but they can be in some cases. Consider a credit card with a 25.99% interest rate and a balance transfer credit card with a 14.99% interest rate. If you carry a high balance on the 25.99% card, it may be worthwhile to transfer the high-interest balance to the lower-interest credit card.
Balance transfer credit cards become more beneficial when they include special balance transfer offers. Some credit card issuers will give offers to people who open a new account or to those with an existing credit card account with the company. For example, you’ll often see a 0% APR offer on all transferred balances for a fixed promotional term — generally 6 to18 months.
These 0% introductory APR credit card offers not only give you interest-free financing for a set time frame, but they can also help you better manage your repayments by taking interest charges out of the equation.
So, if you have a $3,000 balance on a 0% APR card with an 18-month promotion, you can easily determine how much to pay monthly so you can be debt-free before the promotion expires. Simply divide the balance by the promotion length. In this case, $3,000 divided by 18 equals $166.67 per month.
A balance transfer credit card may seem like a perfect solution, but before you dive in, there are some things to consider.
To make the most of a 0% APR offer, calculate a monthly payment amount that allows you to pay off the balance just before the intro APR period ends. This ensures you’re paying as little as possible each month, thereby maximizing your cash flow while still avoiding interest.
If you can afford to pay off the balance transfer credit card before the promotional term expires, use an online credit card interest calculator to determine how much interest you’d pay on the original card in that same time frame. If the regular APR charges you’d pay on the original card are less than the balance transfer fee, it’s wise to skip the balance transfer.
Before accepting a balance transfer offer, read the fine print to ensure it’s the right offer for you.
First, check for costly fees, including an annual fee. These annual fees usually run between $25 and $550 and can kill any savings from not paying interest. If there is a yearly fee, determine if the card’s benefits are worth the expense. If they aren’t, continue searching for a different balance transfer card.
Second, watch out for deferred interest. This is when the credit card issuer offers no interest for a period, but it keeps a running total of the interest charges you’ve not paid. If you haven’t repaid the full balance by the end of the introductory period, the credit card issuer applies all the unpaid interest to your account.
Credit card companies often have strict qualification requirements, and there’s no exception for balance transfer credit cards. The best balance transfer credit cards often require good credit or excellent credit to get approved.
Without the required credit score and credit history, the credit card company may decline your application.
Yes, balance transfers work just like a monthly payment to your credit card company. The credit card company you’re transferring from only knows you made a payment — it doesn’t know if it’s a transfer or not.
That said, a balance transfer doesn’t process exactly like a minimum payment you’d make online. Here’s why.
When you make a regular monthly payment through your credit card‘s online system or over the phone, you can generally make that payment up until 11:59 p.m. on the due date and not incur a late fee.
However, a balance transfer takes time because it has several processing steps. When you submit the balance transfer, the new credit card must process your request and submit the payment to your credit card. This could take several days to a week before it posts to your account.
If you make the balance transfer request too close to your due date, you could miss the date and get charged a late fee.
The credit limit on the balance transfer card matters as well. If you use the paper check method to transfer a balance and the transferred balance exceeds that credit limit, the balance transfer credit card may reject it.
This could further delay the transfer posting to your credit card, potentially causing you to miss your minimum payment due date.
Remember, you must also account for your 3-5% balance transfer fee fitting within the available credit limit on your balance transfer credit card.
After initiating the balance transfer, monitor the account you’re transferring from. Keep an eye out for the balance transfer to post. If the balance transfer doesn’t post before the minimum monthly payment is due, go ahead and make the minimum monthly payment on the old credit card from your bank account.
This will prevent you from getting a late fee and a late payment on your credit report, which may reduce your FICO credit score if the transfer takes an extended time to post.
If your minimum payment and balance transfer cross paths, and you end up overpaying your credit card, you’ll have a negative balance on your old credit card. But don’t worry. There are ways to get repayment from your credit card.
The quickest way to rid yourself of this negative balance is to use the credit card for a new purchase. Buy something that costs at least as much as the negative balance, and repay the difference on your next bill.
Your old credit card will also eventually send you a check for the overpayment. You can either call your credit card company via the phone number on the back of the card and request a check or wait several months until the credit card company automatically issues a check.
Regardless of the process you choose, call the credit card company to verify it has your correct mailing address.
Yes! Once your balance transfer is complete, your old credit card company will process it as a normal payment. This will satisfy your minimum monthly payment requirements so you can avoid late fees and potentially negative information on your credit report.
However, there are a few things to consider, including processing time. If the processing time pushes the balance transfer beyond your minimum payment due date, you could incur a late fee. This is why it’s so important to have your regular minimum payment ready to submit if there’s a delay.
There’s no need to worry if your payment and balance transfer are both applied to the account either. Your credit card company will refund any overpayments you make.
If you can’t get approved for a balance transfer credit card or just prefer an alternative method, the Tally1 can help. Tally’s line of credit offers an interest rate that’s lower than most credit cards, plus you can use the credit line multiple times to pay off several cards.
You’ll also reduce your monthly payments to just one — Tally will handle paying all your cards for you.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.90% – 29.99% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.