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CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

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DaveInAZ
Senior Contributor

CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

I'm finding a lot of confusion on how to do a BT, and the effects of doing one, even in threads in CC Applications forum. I'm thinking it would be a good thread here to lay out the basics, and then add Data Points for BTs with different CC issuers based on members experience or knowledge how they treat BTs. For example, with many CC issuers if you use the card for a purchase after doing a BT, you lose the grace period to PIF (pay in full) that purchase by the due date and pay no interest. Instead, new charges to the card have interest applied to them as soon as they post to the account.

 

The Basics:

 

It is always best to do a BT on a card with a $0 balance, because when your combined balance has different interest rates, how you payment is applied gets complicated. As required by the Credit CARD Act of 2009, here's how payments must be applied:

 

Making only the minimum payment: The minimum payment can be applied at the card company's discretion. Most every CC issuer will apply a minimum payment to the lowest interest portion of the balance - your 0%/low promo % balance. None of a minimum payment will be applied toward your previous balance with a higher APR.

 

Making more than the minimum payment: Any payment over the minimum payment amount must to be applied to the portion of the balance with the highest interest rate. Once that higher interest balance has been fully paid, any remaining payment amount in excess of the minimum is applied to the next highest interest rate, and so on. So if you do a BT on a card that already has a balance at the card's standard interest rate (or a rate higher than your BT), you'll need to do some large payments at first to get rid of that balance to have that 0%/low % BT interest be the only interest applied to your balance.

 

Fees & Interest Rates: While most BT offers are a straight forward offer of 0% APR for specified period of time with a transfer fee, such as 12-15-18 months 0%, with 2-3% fee on the amount transferred But some offer you a choice. For example, I have a current offer from Discover for 0% for 12 months with 3% fee, or 4.99% for 18 months with $0 fee. So, if I only need the BT for a few months or even 6 months the 4.99% offer is the better deal, as the 4.99% is the annual rate, if I paid it off in 6 months the effective APR would only be around 2.5%. Or, if I'm sure I will need the 18 months to repay the BT, then the 4.99% offer is better, because for the 0%/12 mo. offer I'd be paying my standard APR for the last 6 months, which is 14.74%.

 

 

Data Points:

 

With many, if not most CCs, if you take advantage of a BT offer you loose your grace period to PIF any new purchase by the due date and not pay any interest. Instead, your standard interest rate is applied to any new charges as soon as they post to your account. Yes, per the CARD Act you can then make larger than the minimum payment to pay them off, but you'll stay pay interest on them until you make the payment. To me, one of the great benefits of using a CC is to earn rewards and then have several weeks to PIF and pay no interest. So for these CCs that charge interest on new charges your best choice is to sock drawer that card until you pay off the BT.

 

Discover Card:

It's right there on my BT offer: "If you usually pay for purchases in full each month to avoid interest, transferring a balance will change that. YOu will be charged interest on purchases unless you pay your entire balance in full, including any transferred balances, by the first payment due date"

 

Barclays: "If you do not pay off your entire balance each month (including the promotional balances you added through the balance transfer offer), Interest cannot be avoided on purchases made after the balance transfer. To avoid paying interest on your new purchases, you would need to pay your New Balance as shown on your statement by the due date and time liste0d.

EDIT: Those are the terms on a BT offer on my Rewards MC. As Irish80 pointed out in the comments, different Barclays cards may have diffterent terms. Read the terms of any Barchays card fully to see the terms.

 

Capital One: Cap One is a bit different in that they offer you a "Interest Saver" payment option. From my Cap One BT offer: "If you accept this offer you can avoid interest on new purchases by paying the Interest Saver Payment each month by the due date. This payment includes your minimum payment plus any purchases and/or interest charges".

 

I've done BTs with Discover, Barclays & Capital One. I sock drawer'ed Disco & Barclays cards until I paid off the BT. I'm taking an offer of 0% for 18 months, 2% fee on my Quicksilver card next week. I'm PIF the current balance tomorrow and doing the BT later in the week. I will also SD Quicksilver, but only because I have better reward cards and prefer to keep things simple.

 

I'll update this OP with practices of other card issuers on BTs as member post them. Happy BT'ing!

9 REPLIES 9
Total80sKid
Senior Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

Eek.

I may have screwed myself.

I used my new $10.5k PenFed Promise for roughly $6k in BT's.

I also recently got a fee-free $500 cash advance.

What does this mean for me?

If I pay the $500 back asap it won't matter and will be paying interest on it for the entire time my BT's are going on and paid off?
Message 2 of 10
DaveInAZ
Senior Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

I assume that while fee free the cash advance is charged the card's regular APR, and the BT is 0% or low APR? Per the CARD Act the portion of payments more than the minimum payments must be applied to the highest interest balance. So make large payments until you pay down the cash advance.
Message 3 of 10
Total80sKid
Senior Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

Thanks, Dave!

The BT offer is 12 months at 4.99%

How do I know which part of my payment is going towards the BT's and the cash advance?

Message 4 of 10
NRB525
Super Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts


@Total80sKid wrote:
Thanks, Dave!

The BT offer is 12 months at 4.99%

How do I know which part of my payment is going towards the BT's and the cash advance?


It depends on how much you pay. Read the sequence Dave wrote up in the first post. You want to pay the minimum payment amount plus $500 more than that, all in the same month, if you want to make the advance go away.

 

It is also not necessary to panic, since only the $500 is going to be subject to that interest rate, and you knew that when you asked for the advance. The Balance Transfer offer is in a separate interest calculation tranche and so stays on the 0% APR rate.

 

I would take it slowly and see how the first statement shapes up. An important part of Balance Transfers is to just participate in them first hand. That is where you really learn the nuances of the terminology and what really matters.

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Message 5 of 10
Total80sKid
Senior Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

Thank you for explaining it a bit more for me, @NRB525
Message 6 of 10
Anonymous
Not applicable

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

I'm not so sure that is correct for Barclays.  I've had almost constant BTs on my Sallie Mae card and now whatever it is as well as on my Aviator and have made purchases afterwards and never paid a cent in interest.

Message 7 of 10
Anonymous
Not applicable

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

Good thread Dave.
Message 8 of 10
DaveInAZ
Senior Contributor

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts


@Anonymous wrote:

I'm not so sure that is correct for Barclays.  I've had almost constant BTs on my Sallie Mae card and now whatever it is as well as on my Aviator and have made purchases afterwards and never paid a cent in interest.


Thanks for the info, Irish. I have a BT offer on my Rewards MC & those were the terms. I'll edit the OP that different Barclays cards may have different terms.

Message 9 of 10
Anonymous
Not applicable

Re: CC Balance Transfers (BTs) - Data Points & Do's & Don'ts

Chase was always good with BT's. We did one. we would make a payment PLUS PIF our purchases. They never changed the rate on the BT as long as i PIF my purchases each month. 

Message 10 of 10
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