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A balance transfer is a wonderful tool to overcome high interest credit card debt. Interest can be incredibly expensive and makes paying off a credit card challenging. When you pay off a credit card with a higher rate using one with a lower rate, you pay less interest decreasing the total cost of borrowing and giving you more room in your budget.

If you have credit cards with costly rates and a better interest rate is available, you could benefit from moving the outstanding amount. There are a few things to consider when it comes to balance transfers.

Are there any fees?

Transfer fees – When transferring the balance from one card to another, there may be a fee for the transfer charged by the new institution. It could be a set dollar amount or a percentage of the balance (usually 2% - 5%).

Example: If you transfer $1,000 to a credit card that charges a 5% fee, you will pay $50 for that transfer, and your new balance will be $1,050.

Not every bank or credit union will charge for transfers. If you can find a credit card with no transfer fees, it may help you keep the cost from eating into your overall savings.

Annual fees – Many credit cards will charge fees each year for the use of the card, ranging from $94 - $157. There are also many credit cards that do not.

To truly benefit from a balance transfer, the savings from the lower interest rate must outweigh the cost of transferring the balance from one credit card to another. The MembersAlliance Visa Credit Card does not charge a fee for balance transfers, and there is no annual fee, keeping your savings where they belong…in your pocket.

A note about introductory rates

O%APR introductory rates and transfer specials can be a big draw for those considering transferring their balance. If you can pay off all your debt within the introductory period, you will save a lot of money by paying no interest on the debt that you transfer over.

Example: If you transfer $1,000 from a 20% interest rate credit card to a 12-month 0% APR credit card and successfully pay it off before the 12-month introductory period is over, your estimated savings would be $124.

The tough part - when interest is not paid off within the introductory period, the normal APR kicks in. If the normal interest rate of the new credit card is lower than your original rate, it is still a helpful money saver even after the 0% APR offer is over, but if the new rate is similar or even higher, these transfers could end up costing you.

MembersAlliance credit cards range from 8.90% APR to 17.90% APR, which is lower than many options out there. If you transferred your balance from a 20% APR credit card to an 8.90% APR credit card, that is still 11.1% less interest to be paid. Other credit cards can have a much higher interest rate that may take away any savings introductory offers provide. That is why it is important to consider the regular credit card interest rate in addition to the promotional rate.

How much can I transfer?

How much you can transfer depends on the credit limit you are approved for. There is a chance that the limit of the receiving credit card may not cover the entire balance you want to transfer. It might be worth moving part of the balance to pay less interest for at least some of the balance. Keep in mind that it would mean managing two credit card payments.

What other offers are available for balance transfers?

Although 0% APR introductory rates are the most common, a special interest rate for balance transfers and cash advances may be offered by financial institutions that lasts until the transferred balance is paid off instead of returning to the original rate.

Example: A balance transfer special offered at MembersAlliance for 6.90%APR will keep transferred balances at that rate until those balances are paid off. Additionally, we always apply payments to the higher interest balances first. Which means if you transferred $1,000 in balances from another card, made $1,000 in new purchases at your regular rate between 8.90 – 17.90%APR, and then made a payment of $1,200, the remaining balance of $800 would all be at 6.90%APR.

MembersAlliance will occasionally offer these types of specials. Check out the Visa Credit Card page to see our current offers.

Make it count!

Balance transfers are great for knocking out debt but can open the door to taking on more debt. If you keep increasing the balance on your previous credit card, it will negate the transfer benefits. Think transfer > pay off > save!

If you want to find out if a balance transfer could save you more money and add some room to your budget, we have financial counselors on staff to help. Set up a meeting today!