What Is a Balance Transfer and How Does It Work?
We’re guessing you’ve heard that a balance transfer can be an effective way to get your finances on track. A balance transfer is the act of moving debt from one account to another, with the goal of saving money. When done correctly, a balance transfer can get you on the road to paying off debt quicker – and spending less on that debt over the time it takes to pay it off.
A balance transfer is exactly what it sounds like: A transfer of balances. You take the balance of the debt you owe on one or more accounts and transfer it to another account. Sounds simple, right?
The main reason people consider a balance transfer is to move high-interest debt to a credit card that has more attractive rates – or, even better, a low, fixed rate, so they won’t be surprised with rate increases in the future.
Balance transfers can happen with existing cards. If you have a UMe Credit Card that has available credit on it, you’re set up for balance transfer success! UMe Credit Cards feature a low, fixed rate, and zero balance transfer fees, which equals savings for U from the get go.
Some balance transfers involve opening a new account, which means that there are steps involved and certain requirements that must be met, as well as considerations for you to think about.
Keep reading to learn more about balance transfers and how they work. At UMe, we are always dedicated to helping U make a step in the right financial direction.
Balance Transfer Basics
UMe Pro Tip: Did you know that if you already have a UMe Visa Credit Card, you can get started on a balance transfer today?
If you’re considering applying for a card in order to do a balance transfer, you should know a bit about credit cards and how they work. Understand what goes into applying and the rules and requirements for approval.
Let’s take a closer look at what is involved in a balance transfer and how balance transfers work so you can move forward with confidence.
Credit Score Requirements
When you apply for a new credit card, you’ll have to meet the issuer’s credit score requirements. Balance transfer credit cards usually require good-to-excellent credit. This means a credit score of 670 or higher.
UMe Pro Tip: Need to raise your credit score? We have tools and resources to help, including how you can use a credit card to raise your credit score!
Credit Score Impact
Applying for a card for a balance transfer could actually help your credit score. When you increase your available credit, your credit utilization ratio will improve. Credit utilization is the amount of credit you’re currently using divided by the total amount of revolving credit you have available. Credit utilization is an important factor when calculating credit score.
However, multiple applications for credit cards in a short amount of time could suggest you are a riskier borrower than someone who applies less often. So, be mindful when you decide to apply for a card – and be selective about the card you apply for.
Balance Transfer Limits
The issuer of your balance transfer credit card will consider your qualifications and determine a credit limit for you. This means that the amount you can transfer to the balance card may be limited to a specific amount. Be aware of this limit so you can prioritize the highest-interest debt. Focusing on this type of debt first is a smart financial move.
UMe Pro Tip: Pay off your higher interest debt first, because that’s what’s costing you the most money.
There may also be time limits to initiate the transfer. Be sure to read all the fine print so you can stay on task. You can complete your credit card balance transfer in minutes over the phone or online.
Balance Transfer Fees
Ah, yes. Balance transfer fees. Here at UMe, we do not charge any fees to transfer your balance. That’s right — no fees! After all, it doesn’t make sense to start the journey toward debt freedom with a fee!
Many other issuers will charge you a balance transfer fee between 3% and 5% of the amount transferred. This fee may be a bit of a shock when you were opening the transfer card with the hopes of saving money and paying off debt faster. So, definitely be aware of that in the fine print.
Saving Money With Balance Transfers
As we stated above, the main reason people transfer balances is to move high-interest debt to a credit card with a lower interest rate. What does this all mean, and how can it save you money? Let’s take a look.
Annual Percentage Rate
Annual percentage rate (APR) is the cost to borrow money. You are charged interest — the APR — on the amount you borrow or the balance on your credit card.
The amount of interest that you pay on your credit card changes as the balance changes. It’s calculated based on the unpaid balance that is carried from month to month. With an unpaid balance, interest charges can grow, causing the amount you owe to increase. This can start a cycle of debt — and escape may seem impossible.
While it may initially seem overwhelming, that’s where UMe can step in and lend a hand. We are always here to help you stay at the top of your financial game.
APR and Balance Transfers
A credit card balance transfer may be the answer to your debt cycle dilemma. Making it easier to pay off your debt is a great start to getting debt free!
For instance, if you use a credit card with a 20% APR, you will be charged 20% of your balance over a year. If you carry a $1,000 balance for a year, you would owe about $200 in interest by the end of the year.
When you transfer a balance, you usually do so because of a promotional APR that can be as low as 0%. If you transfer a high-interest debt to a card with a 0% APR, you can save money by avoiding paying interest. In the example above, that saves you $200!
UMe Pro Tip: Remember that promotional doesn’t mean forever! Be sure to take advantage of the balance transfer offer and low APR and pay off as much debt as possible within the time limits.
IRL Examples
So how would this look for U? A balance transfer can be a good move if you find a card that fits your financial needs and has an attractive APR with the potential to save you money.
For example, let’s say you’re carrying a $5,000 balance on a credit card with an APR of 15%. If you make the minimum monthly payments (typically between 2% and 5%), it would take you 146 months to pay off the balance and you’d pay about $3,200 in interest. That brings your total cost to over $8,000!
If you transferred that $5,000 balance to a card with a promotional APR and you paid off the balance within the promotional period, you’d be saving thousands in interest. With many issuers, a balance transfer fee would be baked into the payment. On a $5,000 balance transfer, this fee could range between $150 and $250.
Remember, at UMe, we don’t charge balance transfer fees! That’s right! A balance transfer with UMe can start saving U money right away. Paying off your balances, saving in interest payments, and avoiding a fee?
A Balance Transfer Made for U
At UMe, we deal in facts. And the fact is, we have the best balance transfer credit card in Burbank (and beyond)!
When you transfer your balance over to a UMe Visa, you lock in your low, fixed rate for good. No surprises. No promotional period that is bound to end. You are put right on the road to success — you know where you’re going and how to get there!
But that’s not all. Our cards are also fee-free. That means that you not only save on balance transfer fees, but there are no annual fees, no cash advance fees, and no application fee. Fees, schmees!
These perks have you thinking about transferring? Other benefits of a UMe credit card include:
- Instant card issue — stop by the branch and pick up your card the same day!
- Enhanced card security and tools to help manage your accounts
- Rewards, like cash-back, on every single purchase you make
- Extensive rewards catalog that includes event tickets, travel, retail, and more!
- Exclusive customer service reserved for UMe members only — to us, you’re family!
Stop or give us a call at (818) 239-2900 and we’ll walk you through the application process — or apply online today!
Save With a UME Balance Transfer Today!
At UMe, we work for U. Let us help you with a credit card balance transfer that fits your financial needs.
With the right strategy, a balance transfer can be the answer to your credit card debt problems. We have broken down the process into simple steps so you can easily make the transfer and start saving money immediately.
Of course, we can also help U through any and all financial paths, including personal loans, to help you get — and stay — debt free.
Disclaimer: U matter to Me (all of us) at UMe — and that’s why we do our best to deliver helpful information on our blog. Please note the following: (1) UMe Credit Union works hard to make certain that the information we post here is as accurate as humanly possible. But as you know, information can change and evolve quickly. While we try to update the blog on a regular basis, the content of some older posts may not be correct or up-to-date. (2) Some destinations on the World Wide Web that we link you to will exist on external websites. UMe Credit Union does not officially endorse any connected sites, nor do/did we compensate or get compensated by any entities to be featured in our posts (unless otherwise noted). (3) Everyone’s situation is unique and we advise you to consult with our personal bankers or your finance, tax, or legal professional for advice individualized to you!