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Updated on Wednesday, May 25, 2016
If you’re struggling to pay debt on a high-interest credit card, you’ve probably considered using a balance transfer check.
A balance transfer is when you take a balance from Credit Card A with a high interest rate and transfer it to Credit Card B, which is offering a low or 0% APR promotional period. And your credit card company might send you checks in the mail to transfer a balance.
What is a Balance Transfer Check?
A balance transfer check is like a typical check except it’s issued by your credit card company and used to withdraw cash from your credit line. You can write out a check directly to the company that has the debt you want to pay off. Or you can write a balance transfer check payable to yourself for a cash deposit.
Here’s an example. Say you open up a balance transfer card with a $15,000 credit line and you want to pay off the last $5,000 of your student loan. You make out a balance transfer check of $5,000 payable to yourself.
Once you get the cash in your bank account, you pay off the student loan with your balance transfer. Then you enjoy an interest-free period on the $5,000 balance that’s now sitting on the balance transfer card.
The Good and Bad of the Balance Transfer Check
Besides using the balance transfer check to pay off debt, you may able to use it to obtain cold-hard cash. In this scenario, you would keep some of the cash or all of it instead of using it to repay a debt. This isn’t a good idea if you’re deep in debt. It’s not free money and you’ll eventually owe interest on it.
Some balance transfer checks have a fee of 3% to 5% per transfer, however, these fees are often much less than you’d pay in interest at existing rates. You’re also required to transfer a balance within a certain timeframe typically within 60 days for it to qualify for the deal.
You can avoid a 3% (or 5%) balance transfer by opening a new credit card that has a special intro offer waiving the balance transfer fee. Our favorite offer comes with the Chase Slate® credit card. There is a Intro $0 on transfers made within 60 days of account opening. After that: Either $5 or 5%, whichever is greater. There’s also a 0% Intro APR on Purchases for 15 months and 0% Intro APR on Balance Transfers for 15 months (16.74% - 25.49% Variable APR, thereafter). The card charges a $0 annual fee. Just remember: while balance transfers may be able to be used to pay off debts that aren’t from credit cards, if you are looking for cash, this is not the best option.
The information related to the Chase Slate® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.
There are a few other things to keep in mind when using a balance transfer check.
First, not all credit card companies offer balance transfer checks as a way to transfer money. If your sole reason for signing up for a balance transfer card is using a balance transfer check, you need to read through the terms or reach out to the credit card company to make sure it’s an option. Otherwise, you could end up with a balance transfer card promotion that serves no purpose.
Even if you do happen to find a credit card company that offers balance transfer checks, verify that the process of obtaining a balance transfer check will happen quickly. As mentioned above, balance transfer deals usually have a deadline. If you transfer a debt after the deadline, it won’t qualify for the promotion.
Try to pay off the balance before the end of the promotional period, especially on debts like student loans. If you use a balance transfer to pay off a student loan debt at 8%, then dropping to 0% sounds great. But if you have a lingering balance of say $1,000 after the promotional period is up, your debt has gone from a high of 8% to probably 18%! Be sure you have an actionable and realistic plan to pay off the debt before using your balance transfer.
Beware of the Cash Advance APR
If you receive a check in the mail from your credit card company, just make sure you read the terms and conditions carefully. Most of the time, credit card companies will only send checks that have 0% promotional APRs, or low rate promotional APRs.
This is a much better path than taking out a cash advance on a credit card. With a cash advance, most credit card companies will charge an up-front fee and there is no grace period. Even worse, most cash advance APRs are much higher than purchase APRs (although you should check with your card issuer).
In general, a check offered by your credit card company will be a much better deal than a standard cash advance.
We can’t stress enough the importance of making sure a credit card company offers balance transfer checks if that’s the method you want to use. For the most part, transferring a debt from one credit card to another online is the most convenient way to take advantage of a balance transfer special which is something to consider.
If you plan to use a credit card check to increase your bank account balance, it may cost you. Do your homework before hastily writing out a check from your credit card company.