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What is a balance transfer and how does it work?

If you carry one or more credit card balances that you don’t pay in full each month, you may be able to save money on interest payments and pay down your debt faster with a credit card balance transfer.

What is a balance transfer?

A balance transfer is the process of moving an unpaid balance (or a portion of a balance) from an existing credit card or loan to another credit card with a lower interest rate.

Benefits of a balance transfer

A balance transfer can be a smart, money-saving strategy to help you pay down debts faster and more easily manage your finances. That’s especially true when there’s a significant difference between the interest rate you’re currently paying and a new balance transfer interest rate. You may also be able to:

  • Take advantage of a lower interest rate, potentially saving you money on interest charges as you pay down your balance

  • Pay down balances faster freeing your money for other financial goals

  • Consolidate multiple monthly payments and due dates into a single payment, helping to lower your overall monthly expenses and simplify your finances

How does a balance transfer work?

A credit card balance transfer is a simple process that usually includes the following steps.

Step 1: The offer

The balance transfer process often starts when a person is notified that they’ve been pre-approved for a new credit card or receives a balance transfer offer from a current or new credit card issuer. The offer could include a low-interest or 0% interest promotional rate. The promotional interest rate may be valid for a specific length of time, such as 6, 12 or 18 months, for example.

If you haven’t received an offer, you can also contact your current bank or credit card issuer or visit your nearest Commerce Bank branch to check if you’re eligible for a balance transfer, and what the interest rate and promotional period would be, if any.

Step 2: The approval

Once approved for a balance transfer, you’ll let your credit card company know the amount you want to transfer, along with the account number and bank name of the account you’re transferring from. This can usually be done online, through a mobile app, by phone or by using a balance transfer check from the card issuer you’re transferring funds to.

In exchange for a lower interest rate, your account may be charged a balance transfer fee. This is often a small percentage of the transferred amount.

Step 3: The transfer

The credit card issuer you’re transferring to will take care of moving the balance from one account to another. On average, a balance transfer can take about two weeks to complete. You’ll need to keep making payments on your existing accounts during that time to avoid late fees.

What to consider before initiating a credit card balance transfer

Keep these factors in mind to make the most of your balance transfer.

  • Pay attention to the balance transfer fee, the maximum amount you’re eligible to transfer and the promotional interest rate period. Tip: Set a reminder on your calendar so you know when your promotional rate is ending. You may want to pay off your balance before your rate changes to avoid additional interest charges.

  • Consider how a balance transfer may impact your credit score: Recommended guidelines are to use less than 30% of your total available credit. It’s a good idea to keep a close eye on your credit score and review your credit report at least once a year, since maintaining a strong credit history may make you eligible for lower interest rates.

  • Keep in mind that banks typically won’t let you transfer a balance to another card within the same bank.

  • Read the fine print: A late payment could cause you to lose your promotional interest rate, and the interest rate after the promotional rate period may be higher than the rate you’re currently paying.

  • Create a plan to pay off the balance within the promotional or introductory period to avoid paying a higher interest rate on any remaining balance. Keep in mind that even if you can’t pay off the remaining balance by the end of the promotional period, the new interest rate typically begins to accrue on the outstanding balance and not the original amount transferred.

A credit card balance transfer can be a smart way to consolidate higher interest debt and pay it down faster. Learn more about Commerce Bank’s current credit card interest rates and balance transfer offers. Or contact us for more information.

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