If you’re doing research on balance transfer cards, you might have come across some confusing terms. Instead of learning these terms through the mistakes you make with transferring your credit card balance, we’re here to help. In this quick guide, we’ll explain some important terms you should know.
The basics
Balance
Your balance is the amount of debt you owe.
Balance transfer
Typically, you initiate a balance transfer to move debt from one credit card to another card. You might do this because:
- The other card has a better interest rate, or
- You want to consolidate debt from multiple cards.
Though balance transfers are usually for credit card debt, you can often transfer many different types of debt, including student loans, mortgages and auto loans.
Balance transfer kiting
Balance transfer kiting is the process of avoiding interest by opening up multiple credit cards with 0% intro rates to transfer your debt. Credit card kiting isn’t illegal, but can be risky. Repeat transfers to avoid paying APRs on a balance you can’t afford to pay off can lead to a mountain of debt. And it can negatively affect your credit if lenders see that you keep high levels of debt.
Credit score
A credit score is a number assigned to you 300 and higher that summarizes your financial health. Anytime you apply for a loan or credit card, lenders check your score to determine your rate, with the higher scores getting the best rate. Sometimes you can be turned down for a loan if your score is too low. The most widely used score is distributed by FICO, the credit rating agency. It determines your score based on factors like payment history, age of credit and debt-to-income ratio.
No-fee balance transfer card
With a no-fee balance transfer card, you’re not charged fees when you move debt to it. Sometimes, this perk is temporary — sometimes up to 60 days. Other card providers may offer no balance transfer fees indefinitely.
Keep in mind that though a no-fee balance transfer card doesn’t charge balance transfer fees, it may still charge annual fees, foreign transaction fees, cash advance fees and more.
Joint balance transfer
A joint balance transfer is when a balance is transferred for a partner or family member’s debt. Not all credit card providers allow this process, but there are many that give you the option to move your debt to a partner’s credit card. There are two ways to do this: Through transferring between two names and by creating a joint account for the debt. Transferring between accounts involves moving your balance to a new card with your partner’s name attached. This essentially moves the responsibility of debt and could increase your partner’s debt-to-income ratio, while helping yours. Creating a joint account allows you and your partner to share the responsibility of the debt.
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Fees
Annual fee
An annual fee is a yearly fee you pay to your credit card company for the ability to use your card.
Balance transfer fees
Most providers charge transfer fees when you initiate balance transfers. Typically, these fees are 3% to 5% of the amount you transfer.
Cash advance rate
Taking out a cash loan from your credit card is called a cash advance and costs significantly more than you’d pay to make purchases. You’ll likely pay a transaction fee and pay around 24% of your advance, often with no grace period to pay off before you’re charged.
Foreign transaction fee
A foreign transaction fee is a fee assessed when you use your credit card for a purchase outside of the US. A card’s foreign transaction fee is usually between 1% to 3% of the transaction amount in US dollars.
Late fee
You may be charged a late fee when you miss a payment or fail to pay your minimum balance by the due date.
Interest
APR
The APR is the way credit cards make money on lending you money. APR stands for annual percentage rate — the interest rate that’s charged to debt. It’s applied each month to the remaining balance on the card.
Introductory APR
An introductory APR, also called an intro APR, is a temporary interest rate a credit card provider offers to a new customer. After the intro APR ends, it reverts to an ongoing APR.
Ongoing APR
The ongoing APR, also known as the revert rate, is the interest rate you’ll pay after your introductory APR period ends. Typically, the ongoing APR is much higher than the intro APR.
Penalty rate
The penalty rate or default rate, is a very high APR charged when you violate the terms of your cardholder agreement like making a late monthly payment.
Bottom line
If you’re looking to save money on your credit card payments, finding a balance transfer card can be a way to help you out of debt. Understand the risks and fees that can come with opening new credit cards and transferring balances.
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