What are balance transfer checks?
Even a small amount of debt can grow into a monstrous burden when interest rates are high. One solution is a balance transfer check. These are blank checks usually sent to your mailbox by a credit card company that wants to make you an offer on a new balance transfer credit card.
By using these checks, you agree to open and transfer your balance to the company’s card. Balance transfer checks usually include the terms of use and are available to use for a certain period of time. During the promotional period, these checks usually carry a 0% or slightly higher APR, depending on your creditworthiness.
How can you use a balance transfer check?
A balance transfer check can be written directly to another lender you have a balance with, or made out to yourself and cashed. In either case, the amount written is then applied to your balance with the credit card company the check is from. You can write the checks only for amounts up to the credit limit allowed by the lender.
Is using a balance transfer check a good deal?
Here are examples of features to look for:
- Length of introductory period. Introductory windows vary based on lender and creditworthiness. It’s important to shop around for one that will best serve your needs. Perhaps a shorter window is all you need to pay off a smaller balance, but that period may not be as beneficial if you have a larger balance you need to pay off in smaller amounts.
- Intro APR. This APR differs from lender to lender. Some checks offer as low as 0%, but they can go up to 3-4% based on creditworthiness.
- Full APR. After the introductory period is over, the provider will apply a higher APR to any remaining balance. If you know you will still have a large balance remaining, it may be beneficial to seek a different check or a balance transfer card with a lower full APR.
Comparison of Balance Transfer Credit Cards
Why am I getting this offer?
You may notice that balance transfer credit card offers always come from a different bank than your current card provider. Balance transfer checks are a benefit that providers use to earn your business from competitors.What to look out for
An intro APR is only effective if you make full use of it and know any caveats that may apply.
- Once your intro APR window closes, you revert to the lender’s full APR for your creditworthiness and card type. Any balance that you have not yet paid off begins earning interest just as it would with any other credit card.
- Balance transfer checks that act as a cash advance carry a higher interest rate.
- Transaction fees and finance charges may apply. When dealing with balance transfer checks, if you don’t pay off the full amount spent after the intro period, you may wind up paying finance charges every month on the unpaid balance. Transaction fees of up to 5% of the borrowed amount may also apply, depending on the lender.
Leveraging credit with balance transfer checks
You can also use balance transfer checks to borrow money from your credit card and invest those funds in something that returns higher interest than you need to pay to maintain your loan — such as a CD or high-yield savings account. You would then make minimum monthly payments until the promotional APR expires, at which point you’d withdraw the money, pay the balance in full and profit from the remaining difference.
This is called balance transfer arbitrage. While legal, this scheme does involve risks. Also, the debt you will carry could possibly exceed the recommended credit card utilization ratio, which could negatively affect your credit score.
Consolidate and conquer debt with a large balance transfer
The final word
Looking into the different types of balance transfer cards and comparing them against balance transfer checks can make a big decision that much easier. A balance transfer check allows you to convert some of your credit into cash to pay another lender, but that money isn’t free. There’s still a time limit to the 0% APR and minimum payments to be made, and it still shifts that credit balance over to the card you wrote the check from.
Balance transfer calculator
Your current credit cards:
Amount Owing
APR
Card 1
Card 2
Card 3
Card 4
Card 5
Card that you are transferring to:
Intro APR
Intro Term (months)
Ongoing APR
Balance Transfer Fee
Annual Fee
At that rate you will not pay off your debt. You will need to make higher repayments.
Months that it will take you to pay off your debt:
With a balance transfer
12 months
Without a balance transfer
15 months
Money saved transferring debt to a balance transfer card:
Savings = $1,000
When you use a balance transfer check to pay off an auto loan can you write the check for more than the loan and have the bank give you the difference?
Hi Susan,
Thanks for your question.
Generally, when you request a balance transfer, you’ll have to provide the details of your current lender you have a balance with. A balance transfer check is then written directly to that lender or to yourself. In either case, the amount written is the total debt you owed with the lender you listed. Kindly note that the amount of the check will also depend on how much credit limit you have.
This is just a general rule, other banks may have exceptions. You may have to directly call the bank where you are transferring your balance to and inquire if this is possible.
Cheers,
Anndy