Balance Transfers: Fall in Love with a Low-Rate Card

Did a sweet opening bonus cause you to overlook a sky-high credit card interest rate? If so, you may have found yourself with a sizeable chunk of debt and unable to catch up. Don’t stick around in a credit relationship that doesn’t benefit you. Instead, apply for a balance transfer and secure a lower rate while you pay off debt.

5 FAQs about balance transfers

1. What is a balance transfer?

A balance transfer allows you to move the balance of one or several cards onto a new or existing credit card with a lower interest rate. This effectively streamlines budgeting, as your debt may have been previously siloed across multiple financial institutions with separate login information. 

2. Why are the benefits of a balance transfer?

The most obvious reason to apply for a balance transfer is to acquire a lower rate while you pay down debt.  

“If you have multiple cards out there, store cards especially, and they have extremely high interest rates, if you transfer them to one primary card with a much lower rate, then ultimately you’re going to save money,” says Neil Peterson, Chief Credit Officer at General Electric Credit Union (GECU).  

When you only make minimum payments each month, you’ll have to pay interest based on an annual percentage rate (APR). The lower the rate, the less interest you’ll pay overtime.  

“If you can pay [your balance] in full each month, fantastic! But if you can’t, a lower interest rate helps more of your payment go toward the principal so you can pay it off faster,” says Peterson.  

The best lenders offer a promotional APR that temporarily allows borrowers to enjoy rates as low as 0% for a set period. But make sure the APR after the promotional period ends is still competitive, or you risk accruing exorbitant amounts of interest in the future. 

• Did you know? Eligible General Electric Credit Union (GECU) members who apply for a balance transfer can enjoy 0% APR for the first 12 months.¹ You can become a member if you live or work in select Ohio, Indiana, and Kentucky counties. Confirm your eligibility and apply for a credit card online in minutes!     

3. Do balance transfers affect credit scores?    

When you apply for a balance transfer, a lender will pull a hard inquiry on your credit – something that’s done anytime you apply for a credit product. This hard inquiry will temporarily lower your credit score, as your desire for more credit is considered an indication of your credit habits. However, the extent of that impact can depend on your credit history. 

“If you open a new card and you have a well-established credit history, that impact will be very minimal,” says Peterson. “If you have lower credit history or smaller credit history then one new account can have a greater impact.” 

Regardless, your score should bounce back relatively soon, and the lower rate you secure through a balance transfer will help you pay off debt faster. 

One thing to also remain mindful of is your credit utilization rate, which accounts for 30% of your credit score. This figure shows how much credit you’re using and compares it to how much is available to you. As a rule of thumb, it’s best to keep your utilization rate at 30% or below.  

Lenders use this benchmark to determine how dependent you are on credit. You can avoid a high credit utilization rate during a balance transfer by securing a limit you won’t max out. For example, transferring $5,000 of debt to a card with a $10,000 limit would put your single-card utilization rate at 50%. However, moving your balance to a card with a limit of $20,000 would keep you within the sweet spot of under 30%. 

• Want to learn more? Access our free eBook, The Ultimate Beginner’s Guide to Credit Scores.

4. What is a balance transfer fee? 

Many lenders typically charge a fee for balance transfers that is a percentage of the amount you’re transferring. For example, if the lender charges a 5% fee and you’re transferring $5,000 in debt, you’ll need to pay a one-time $250 fee. It’s important to consider this fee when determining if a balance transfer is advantageous for you. 

5. How do I set up a balance transfer?

GECU members can apply for a balance transfer online! If you’re not a member yet, becoming one is fast and easy. You’re eligible if you live, work, worship, or attend school in select Ohio, Indiana, and Kentucky counties.

6. How long does a balance transfer take?  

A balance transfer typically takes 7 to 21 days to complete, depending on the lender and the credit card issuer you’re transferring from. During that time, it’s important to continue making at least the minimum payments on your existing card until the transfer is finalized. 

You have financial needs. And GECU has a wealth of credit cards with no annual fee to satisfy them!

“There are many benefits to getting credit with GECU. One you have a local institution that is going to be there when you have questions,” says Peterson. “We have programs for businesses; we have programs for people who do a lot of international travel, so you don’t have the interchange fees. We have a lot of benefits, and the rewards programs are second to none.”  

For help finding your perfect match, reach out to a GECU team member today by calling: 513.243.4328, scheduling a Virtual Branch appointment, or visiting your local credit union branch.