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On certain occasions, your credit card issuer may send you what’s called a “balance transfer check” in the mail. Typically, this will be a blank check that you can make out in any amount that doesn’t exceed your credit limit. As this guide will explain, balance transfer checks should be approached with great care by consumers. If you’re not careful, this small slip of paper can end up adding to your debt, instead of helping you pay it down.
Table of Contents
- What Are Balance Transfer Checks?
- Should You Use Balance Transfer Checks?
- Balance Transfer Checks vs Convenience Checks
What Are Balance Transfer Checks?
Balance transfer checks are a way for you to transfer your debt from one account to your credit card. For example, if you have $10,000 in student loans you may use a balance transfer check to pay them off completely -- provided you have enough of a credit line. You will still have to contend with the debt, however it will now be all held on a separate account, namely your credit card. Balance transfer checks may also be used to pay off multiple indebted accounts and consolidate them all to a single card account.
This service is usually not free. Balance transfer checks typically come loaded with fees and charges for those who choose to use them. Federal regulation mandates that these fees be disclosed to consumers. You usually find a sheet of paper with all the possible fees listed in the same envelope that mailed you the balance transfer check. You should be especially aware of the APR and balance transfer fee. These are usually the two major components of the price involved.
How To Use A Balance Transfer Credit Card?
There are two ways to use a balance transfer, one involves using a check while the other can be completed online or over the phone. With a balance transfer check, you are simply expected to use the funds to pay off the debt on some other account. The moment the balance transfer check is used, it will add the corresponding amount to the associated credit card account. Transfer checks are particularly useful in scenarios where you are transferring non-credit card debt to a credit card.
As mentioned, you can also transfer balances without the use of a check. If you want to move a balance over from one credit card account, you can call your bank and give them the account details. They will transfer the balance for you once you provide them with all the necessary information. Some major banks, including Chase, have online interfaces built that allow you to do this via the web.
Should You Use Balance Transfer Checks?
Whether or not a balance transfer makes sense will highly depend on your financial situation and the offers available to you. There are two things you need consider: APR and the cost of fees. First and foremost, you should only consolidate credit card debt through a balance transfer if you will be refinancing your debt at a lower interest rate. Because credit cards typically have higher APR than other types of loan vehicles this will not always be a given. The average credit card interest rate in the United States is somewhere between 13% and 15%. By contrast, student loan interest, on average, don’t surpass 6.3%.
One of the best times to use a balance transfer check is if it’s tied to an account with a 0% interest rate on balance transfers. These types of credit cards are typically only available to those who have an average credit score or better. The 0% rates on some of the best cards can last up to 24 months.
The other thing to consider is the fees associated with the balance transfer check. You typically need to pay an upfront charge that can be anywhere between 3% to 5% of the total amount you want to transfer. The amount of money you save by transferring your balance to a lower APR should be greater than the total cost of the transfer. Otherwise, your it is not worth carrying out the transfer. You can estimate some of the basic costs of a balance transfer by using your calculator here.
Balance Transfer Checks vs Convenience Checks
Balance transfer checks should never be confused with convenience checks. The latter is also a check you get in the mail from your credit card issuer. However, unlike balance transfer checks, convenience checks are classified as a cash advance transaction and therefore abide by very different rules.
Firstly, cash advances/convenience checks almost never have a 0% APR promotion. Quite the opposite, cash advances usually come with significantly higher interest rates than ordinary credit card purchases do. It’s not unusual for cash advances to come with APRs ranging between 25% and 29%.
Like balance transfers, cash advances come with a fee that is based on some percentage of your total advance. Cash advance transaction fees tend to be slightly higher than what you’d pay for a balance transfer -- averaging around 5%.
You should never deposit a cash advance or convenience check. There are virtually no scenarios where they are worth the expense. Make sure you never confuse a convenience check for a balance transfer check.