Justin Cupler
Contributing Writer at Tally
June 17, 2021
Balance transfers could be a helpful way to save oninterest chargeswhile you work toward becoming debt-free. However, there can be some confusion as to how yourold credit cardprocesses the balance transfer.
Does a balance transfer count as aminimum payment? Or does yourcredit cardprocess it a different way, leaving you stuck making yourminimum paymenton any remaining balance?
Below, we’ll explain how yourcredit cardwill and whether or not it’ll count as aminimum monthly payment. But first, we’ll take a high-level view of what a balance transfer is and how it works.
What is a Balance Transfer?
Abalance transferis when you transfercredit card debtfrom one card to another. The card you transfer to — typically referred to as abalance transfer credit card— issues a payment to yourold credit cardand adds a 3-5%balance transfer feeto thetransferred balance.
Why are Balance Transfers Beneficial?
Balance transfers aren’t always beneficial, but they can be in some cases. Consider acredit cardwith a 25.99%interest rateand abalance transfer credit cardwith a 14.99% interest rate. If you carry a high balance on the 25.99% card, it may be worthwhile to transfer thehigh-interestbalance to the lower-interestcredit card.
Balance transfer credit cardsbecome more beneficial when they include specialbalance transfer offers. Somecredit card issuerswill give offers to people who open anew accountor to those with anexisting credit card accountwith the company. For example, you’ll often see a 0%APR offeron alltransferred balancesfor a fixed promotional term — generally 6 to18 months.
These 0%introductory APRcredit card offersnot only give youinterest-freefinancing for a set time frame, but they can also help you better manage yourrepaymentsby takinginterest chargesout of the equation.
So, if you have a $3,000 balance on a 0% APR card with an 18-month promotion, you can easily determine how much to pay monthly so you can be debt-free before the promotion expires. Simply divide the balance by the promotion length. In this case, $3,000 divided by 18 equals $166.67 per month.
What Should I Know Before Considering aBalance Transfer Credit Card?
Abalance transfer credit cardmay seem like a perfect solution, but before you dive in, there are some things to consider.
Maximizing the promotional term
To make the most of a 0%APR offer, calculate a monthly payment amount that allows you to pay off the balance just before theintro APR periodends. This ensures you’re paying as little as possible each month, thereby maximizing your cash flow while still avoiding interest.
If you can afford to pay off the balance transfercredit cardbefore the promotional term expires, use an onlinecredit cardinterest calculator to determine how much interest you’d pay on the original card in that same time frame. If theregular APRcharges you’d pay on the original card are less than thebalance transfer fee, it’s wise to skip the balance transfer.
Reading thefine print
Before accepting abalance transfer offer, read thefine printto ensure it’s the right offer for you.
First, check for costly fees, including anannual fee. Theseannual feesusually run between $25 and $550and can kill any savings from not paying interest. If there is a yearly fee, determine if the card’s benefits are worth the expense. If they aren’t, continue searching for a different balance transfer card.
Second, watch out for deferred interest. This is when thecredit card issueroffers no interest for a period, but it keeps a running total of theinterest chargesyou’ve not paid. If you haven’t repaid the full balance by the end of theintroductory period, thecredit card issuerapplies all the unpaid interest to your account.
Qualifying can be a challenge
Credit card companiesoften have strict qualification requirements, and there’s no exception forbalance transfer credit cards. Thebest balance transfer credit cardsoften requiregood creditorexcellent creditto get approved.
Without the requiredcredit scoreand credit history, thecredit card companymay decline your application.
Is a Balance Transfer Taken as aMinimum Payment?
Yes,balance transfers workjust like amonthly paymentto yourcredit card company. Thecredit card companyyou’re transferring from only knows you made a payment — it doesn’t know if it’s a transfer or not.
That said, a balance transfer doesn’t process exactly like aminimum paymentyou’d make online. Here’s why.
Processing time
When you make a regular monthly payment through yourcredit card‘s online system or over the phone, you can generally make that payment up until 11:59 p.m. on thedue dateand not incur alate fee.
However, abalance transfer takestimebecause it has several processing steps. When you submit the balance transfer, thenew credit cardmust process your request and submit the payment to yourcredit card. This could take several days to a week before it posts to your account.
If you make the balance transfer request too close to yourdue date, you could miss the date and get charged alate fee.
Credit limit
Thecredit limiton the balance transfer card matters as well. If you use the paper check method to transfer a balance and thetransferred balanceexceeds thatcredit limit, thebalance transfercredit cardmay reject it.
This could further delay the transfer posting to yourcredit card, potentially causing you to miss yourminimum paymentdue date.
Remember, you must also account for your 3-5%balance transfer feefitting within theavailable credit limiton yourbalance transfer credit card.
Should I Continue Making MyMinimum Payment?
After initiating the balance transfer, monitor the account you’re transferring from. Keep an eye out for the balance transfer to post. If the balance transfer doesn’t post before theminimum monthly paymentis due, go ahead and make theminimum monthly paymenton theold credit cardfrom yourbank account.
This will prevent you from getting alate feeand a late payment on yourcredit report, which may reduce yourFICOcredit scoreif the transfer takes an extended time to post.
What if I Overpay MyCredit Card?
If yourminimum paymentand balance transfer cross paths, and you end up overpaying yourcredit card, you’ll have a negative balance on yourold credit card. But don’t worry. There are ways to getrepaymentfrom yourcredit card.
Use the balance
The quickest way to rid yourself of this negative balance is to use thecredit cardfor anew purchase. Buy something that costs at least as much as thenegative balance, and repay the difference on your next bill.
Wait for a check
Yourold credit cardwill also eventually send you a check for the overpayment. You can either call yourcredit card companyvia the phone number on the back of the card and request a check or wait several months until thecredit card companyautomatically issues a check.
Regardless of the process you choose, call thecredit card companyto verify it has your correct mailing address.
Does a Balance Transfer Count as aMinimum Payment?
Yes! Once your balance transfer is complete, yourold credit card companywill process it as a normal payment. This will satisfy yourminimum monthly paymentrequirements so you can avoidlate feesand potentially negative information on yourcredit report.
However, there are a few things to consider, including processing time. If the processing time pushes the balance transfer beyond yourminimum paymentdue date, you could incur alate fee. This is why it’s so important to have your regularminimum paymentready to submit if there’s a delay.
There’s no need to worry if your payment and balance transfer are both applied to the account either. Yourcredit card companywill refund any overpayments you make.
If you can’t get approved for abalance transfer credit cardor just prefer an alternative method, theTally1can help. Tally’s line of credit offers aninterest ratethat’s lower than mostcredit cards, plus you can use the credit line multiple times to pay off several cards.
You’ll also reduce yourmonthly paymentsto just one — Tally will handle paying all your cards for you.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.90% – 29.99% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.
