everything you need to know about credit card balance transfer

Lawrence says: Inasmauch as Gbex, my other blogpartner and buddy made a significant post about credit card balance transfer doorway, so it is my prerogative and provilege to post this as this may help us an all of you out there in the forthcoming event of a possible credit car balance transfer. So there you go, read on.

A credit card balance transfer is the transfer of the balance (the money) in a credit card account to an account held at another credit card company.

This process is actively encouraged by almost all credit card issuers as a means to attract new customers. Such an arrangement is attractive to the consumer because the new bank or credit card issuer will offer incentives such as a low interest or interest-free period, loyalty points or some such other device or combination of incentives. It is also attractive to the credit card company which uses this process to gain that new customer, and of course detrimental to the prior credit card company.

An order of payments for every credit card specifies which balance(s) will be paid first. In nearly all cases payments apply to lowest-rate balances first - highest-rate last. Any balance under a teaser rate or fixed rate will be paid off sooner than any purchases or cash advances (which usually have the highest APR). By avoiding making purchases or taking cash advances altogether, the borrower can ensure they maintain the full benefits of the original balance transfer.

The process is extremely fast and can be concluded within a matter of hours in some cases. Automated services exist to help facilitate such balance transfers. Other similar services do exist, but they may not be free to use.

Decisions on whether or not a card holder decides to transfer one's credit card balance depends on a combination of three things:

Credit card hopping strategy: Because transferring to new credit cards often results in lowered rates, one can repeatedly make use of this process to save quite a lot of money over the years. The idea is to switch to a new credit card the moment the previous one's teaser rate has expired. There is a caveat: the credit card contract may include a clause preventing the credit card holder from transferring the balance a second time within a certain period of time.

There may also be ways of extending the teaser rate or at least preventing it from disappearing prematurely. This method is often advocated by personal finance self-help sources. The strategy ultimately results in higher rates for the rest of the credit card holders since the credit card companies are being deprived of some of their money, and in order to stay profitable they have to charge higher rates.

Normal rate: This is the normal interest rate on a credit card. The lower this rate, the better for the consumer (less cost of capital) and the worse for the credit card company (less profit). The transferred balance will be subject to same rate as the card's purchase (merchandise) rate. Occasionally the same terms will apply as to purchases that may be interest free until the payment date for the statement on which the transfer appears.

More often such transferred balances move immediately to the full purchase rate. Credit card balance transfers involving transfer of funds from a high APR credit card or a store card (which often has high APR) to a low- or zero-APR credit card will result in a reduction in monthly outflows for the card holder.