August 10, 2020
How Credit Card Balance Transfers Work

How Credit Card Balance Transfers Work

A credit card is a short-term loan wherein you take the money for one billing cycle and return it back either in the form of EMIs or in a lump sum. A credit card helps the customer use the issuer’s money for s stipulated period of time. If the payment is delayed, the banks or the financial institutions can charge interest at the rate as high as 36%. Credit card activity is tracked and recorded because it impacts the credit rating of an individual and the FICO score of credit card.

Credit Card Vocabulary:

For understanding the credit card, there are several terms which need to be understood before going ahead:

  1. Credit limit: the credit limit decided by the issuer. The cardholder cannot spend more than the credit limit set by the bank. It depends on the income of the individual. If the income is high, the credit limit will also be high.
  2. Balance: if the credit limit is 5000 USD, then from the start of the billing cycle, the balance will be 5000 USD.
  3. Available credit: continuing with the above example, if the cardholder spent 2500 USD using the credit card, then the available balance will be (5000-2500) USD i.e., 2500 USD.
  4. Billing cycle: It begins from the start date and ends at the due date. All the transactions between that period are counted in the credit card bill.

Credit Card Fees:

There is various kind of fees which are included in the credit card bills like:


  1. Late fees: for late payment, the banks charge interest, which is referred to as late fees.
  2. Annual fees: credit card issuing bank charges annual fee for the maintenance of the card.
  3. Cash advance fees: if the customer pays the bill before the due date, he will be charging the advance cash fees.
  4. Balance transfer fees: the cardholder can transfer the outstanding balance from one credit card to another credit card. The transfer is not free; the issuing bank charges a percentage of fees.
  5. Foreign transaction fees: when the cardholder does shop abroad, the bank charges foreign transaction fees.

Types Of Credit Cards:


  1. Reward points credit card: these cards offer rewards to the cardholders as and when they spend. 100 USD will fetch you one reward point. These reward points can be used as discounts, cashback when the cardholders purchase goods.
  2. Secured credit cards: These credit cards demand an upfront deposit amount. Thus, if the cardholder does not pay the outstanding balance, the banks can adjust the balance from the deposit.
  3. Charge cards: these are the regular credit cards wherein the banks give short term loans and can be paid the next month.


A balance transfer is when the cardholder repays the existing debt with a new credit card. He or she can transfer the amount outstanding to a new credit card. The amount remains the same while transferring. People transfer the amount to the new credit card because of the low-interest rate or low finance charges.

All the banks allow the cardholder to transfer the amount from one credit card to another credit card. Certain banks allow top transfer the amount from loans like auto loans, home loans to credit cards. Not always it is advisable to transfer the amount from one credit card to another credit card. To know whether it is profitable to transfer the amount or not, several criteria are kept in mind.

What is The Minimum Payment?

For maintaining the credit card, cardholders have to pay a minimum payment towards maintenance. This helps in avoiding late payment or delayed payments by the cardholders. Once the minimum payment is paid, the banks will keep on levying interest on that amount, which can be as high as 48% per annum. This may take several years to pay the bill.

How does The Balance Transfer Work?

The average credit card transfer balance is 2.63% of the amount the cardholder transfers. But quite a few also charge around 5% of the amount transferred. Transfer fees help in covering the cost of processing the transaction and the risk of assuming the amount to be the debt by the banks.

How To Transfer The Balance:

The original credit card issuer pays off the debt or the outstanding balance to the new bank. The account number for your existing bank, credit card, the amount you wish to transfer, and the standard card application information, including the name, social security number, etc. has to be mentioned. The above three things are the prerequisites for the money to be transferred from one credit card to another.

Types Of Balance Transferable To Credit Card:

The amount transferable depends on the banks you get the credit card from. For example, CHASE will only allow credit card balance to transfer to another credit card while BARCLAYS also allows the balance of credit card, store card, best auto loan, student loan, mortgage, small business loan to another credit card. Thus, it depends on the various different banks issuing the credit card.

Balance Transfer Rewards:

Transferring balance means drawing down the credit line to pay off an existing debt obligation. Unfortunately, several banks exclude the transfer of funds from getting reward points. But several banks do offer rewards points on the transfer of money; thus, it has to be clear to the cardholders that the transfer of money is not always profitable to them.

Do Balance Transfer Impacts The Credit?

A balance transfer does not affect your credit taking capacity directly. Balance transfers are not recorded anywhere, not in the credit card statements. But it can always impact the creditworthiness of the individual in many ways like:

  1. Credit utilization: the credit utilization ratio can change.
  2. Overspending: transfer can lead to overspending of the funds
  3. New credit access: a new credit card can impact the credit score of the individual. Every time a new credit card is issued, there is always a temporary dip for 3 to 6 months.

How Much Does Credit Card Intrest Cost?

If the individual or the cardholder pays the bill on or before the due date, then he can avoid the credit card interest cost, but if he fails to pay the outstanding amount, then he goes into credit card debt. This debt comes with a cost of the average interest rate at the rate of 14 to 17 percent.


But several banks or financial institutions give a grace period to the cardholders. If he pays the bill before the grace period gets over, he is not obliged to pay the interest amount.

Is Credit Card a Good Buy?

Credit cards have several features:

  1. Helps in building the creditworthiness of the individual
  2. Access to interest-free loans
  3. Valuable reward points
  4. Discounts, cashback, and waivers
  5. Shopping benefits and travel perquisite
  6. Cybersecurity

Buying a credit card is a responsibility; thus, before buying it, the individual should make sure whether he would be able to use it wisely or responsibly or not.


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