What are Balance Transfers?

Wikipedia defines a balance transfer is the transfer of part of the balance (either money or credit) in an account to another account, often held at another institution. There can be transfers between two similar types of accounts or different ones. These include: Credit card accounts, Bank savings accounts, Bank checking accounts and Trading accounts at financial institutions. Transfers are sometimes facilitated by companies trying to recruit new consumers. Sometimes transfers are accompanied by transaction costs paid for by the consumer.

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This article on balance transfers is meant to help Canadian consumers recognize and appreciate the concept of balance transfers, realize the benefits of balance transfer and know the current market rates of balance transfers.

What should Consumers Understand about Balance Transfers?

In an effort to help customers, many credit card companies allow customers to transfer balances from their previous credit cards. This can be done without any transfer charges. As the money is transferred to the new credit card account, the card issuer provides the customer with a grace period. During the grace period, the customer is charged a very less rate of interest on his transferred cash.

The balance transfer is a very good technique that a customer can use for reducing the debt on his card. The balance transfer keeps the interest rates in check and the customer will be free to payback his credit balance. A customer who plans to do a balance transfer must close his existing account. The customer opens a new account which offers balance transfer when the existing one expires. The cash is transferred to the new account and there will be low interest charged on the transferred cash.

What are the Benefits of Balance Transfer?

Balance transfer is an excellent strategy to reduce the amount of cash paid on the interest. However, the customers may incur hidden charges during balance transfer. There is a possibility of losing some cash due to balance transfer. There are also various caps that are applied on the limit of amount that can be transferred. Customers must be aware of all this and one should not allow credit card companies to take advantage of the customerís ignorance.

The balance transfer allows customers while saving cash and avoids getting charged with high interest rates. For instance, the Capital One MasterCard is available for Canadians. By balance transfer using this card the customers can unify their debts into a single monthly payment. reminds consumers that their credit card account application allows you to request the transfer of balances from up to three (3) credit card accounts or other types of loans from other creditors. The total value of balance transfer requests cannot exceed your credit line. MBNA will send either full or partial payment to your creditors in the order you list them upon account approval. Allow at least two weeks for processing. Continue paying each creditor until your balance(s) have been transferred to your MBNA account.

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What are the Balance Transfer Rates?

Two types of rates must be considered when making a balance transfer. First, there is the normal rate that the new credit card company offers. When shopping for a credit card offer, it is best to check which company advertises the lowest interest rates. During the transfer, the normal rate often applies immediately. However, since the normal rate is lower than the old one, it means you will be making lower payments per month. The other point to consider when you make the transfer is the teaser rate. The latter can be offered at two percent, one percent, or even zero percent interest per month: thatís good for the borrower as the credit card payments can be significantly lower. However, the teaser rate is not permanent. It is usually offered as an introductory rate and is valid between 6 and 15 months. The teaser rate can be withdrawn by the credit card issuer if payments are not carried out in a timely manner. So, make payments current to avoid accruing higher interest. Also, consider the fact that the rate can shoot up to an astonishingly high level when the teaser is withdrawn.

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Essential Things to Consider

Now that you have been given a clear explanation about balance transfers and the benefits that can be derived, make sure that you are aware about the high annual fees which may also apply. It is good to review the terms and conditions carefully before you make a decision. The success of using a balance transfer as a means to lower your debt depends on how you manage your monthly payments.
Above all, as a responsible and prudent consumer, use this newly-acquired knowledge to reduce your debts and be wiser in spending and using your credit cards.

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