Business credit cards can be a useful tool for managing cash flow and expenses, but carrying a balance can lead to high interest charges. One way to reduce credit card interest is to transfer the balance to a new card with a lower introductory interest rate through a balance transfer. Balance transfers allow business owners to consolidate debt onto a single card and pay it down more aggressively. In this comprehensive guide, we’ll cover everything you need to know about business credit card balance transfers, including:
- The benefits of balance transfers
- How balance transfers work
- Finding the best balance transfer offers
- Tips for completing a successful balance transfer
- The risks and downsides to watch out for
- Alternatives to balance transfers
Understanding the ins and outs of balance transfers can help business owners make smart financial decisions and potentially save thousands of dollars in interest charges.
Benefits of Balance Transfers
The main benefits of transferring a credit card balance include:
Lower Interest Rates
Balance transfer credit cards offer a 0% intro APR for an initial period, usually between 12-21 months. By transferring existing balances to a 0% APR card, businesses can avoid accruing more interest on those amounts during the intro period. This frees up cash flow to pay down principal faster. For example, a business with $20,000 in credit card debt at a 19% APR would accrue nearly $4,000 per year in interest charges. Transferring to a 0% APR card would eliminate those finance charges temporarily and allow the business to devote more money toward paying down the principal balance.
Consolidate Multiple Cards
Consolidating multiple credit card balances onto a single card through a balance transfer simplifies debt repayment. Rather than tracking several cards with varying payment due dates, balances, and interest rates, businesses have just one payment to focus on.
Improve Credit Utilization
Keeping credit card balances below 30% of the total available credit limits helps maintain a healthy credit score. Transferring balances from nearly “maxed out” cards to a card with ample remaining credit can lower overall utilization and benefit a business’ credit profile.
Access Introductory Offers
Balance transfer cards frequently offer 0% intro APR periods of 12 months or more. Transferring existing balances to take advantage of these introductory rate offers allows businesses to save on interest and pay down debt faster.
How Do Balance Transfers Work?
A credit card balance transfer involves moving an outstanding balance from one card to another. Here is the basic process:
- A business owner finds a new credit card offering a 0% promotional APR for balance transfers. This might be for 12-18 months.
- At account opening, the card issuer provides checks or forms that allow the cardholder to request balance transfers from other accounts.
- The business owner uses these to submit requests to transfer balances from old accounts to the new card.
- The card issuer pays off the specified balances by sending payment to the old credit card companies. This executes the balance transfer.
- For the duration of the intro 0% APR period, the transferred balances accrue no interest on the new card. The business owner can focus on paying down principal.
- Balance transfer fees typically apply, usually around 3-5% of the transfer amount. So a $10,000 balance transfer would incur a $300 – $500 fee.
- At the end of the intro period, remaining balances will start accruing standard interest based on the go-forward card agreement.
- While the process is relatively straightforward, it’s important to follow all required steps to avoid costly mistakes or delays. We’ll cover some best practices later in this guide.
Finding the Best Balance Transfer Offers
The most advantageous balance transfer deals offer lengthy 0% intro APR periods so businesses have ample time to pay down balances interest-free. Here are some factors to look for in the top card offers:
Introductory 0% APR Term
Ideally, find offers providing an intro 0% term of 12-21 months. The longer the term, the more time businesses have to repay principal before standard interest rates kick in. Be sure to note the exact length of the intro period and calendar month it ends.
Balance Transfer Fee
Most cards charge a one-time balance transfer fee, typically around 3-5% of the amount transferred. For example, a 3% fee on a $15,000 balance transfer would equal $450. While not ideal, paying this lower one-time fee is worthwhile to avoid monthly interest charges.
Ongoing APR After Intro Period
Review the standard APR that will apply to any remaining transferred balances after the 0% intro period expires. The goal is to pay off balances entirely within the intro term, but it’s helpful to know the go-forward rate. Variable APRs tied to the Prime Rate are generally preferable over fixed rates.
High Maximum Balance Transfer Limit
To consolidate multiple cards through a transfer, look for offers with high balance transfer limits. Often the maximum is a large portion of the total credit limit. A $15,000 credit line may allow up to a $12,000 or $13,000 balance transfer.
Balance Transfer Eligible Purchases
Some cards allow new purchases to qualify for the intro 0% APR offer. If so, businesses can enjoy interest savings on purchases as well as transferred balances.
No Balance Transfer Fees
While not the norm, a handful of cards offer $0 balance transfer fees. For large balances, avoiding fees can provide significant savings.
Competitive Standard Purchase APR
Even if a business doesn’t fully repay balances during the intro term, it helps to have an attractive standard APR on the card for new purchases after the 0% APR expires.
How to Complete a Successful Balance Transfer?
Follow these steps to ensure a smooth and timely balance transfer process:
- Compare top balance transfer cards thoroughly – Only apply for offers that provide significant interest savings and ideal terms based on transfer timelines and paydown plans.
- Mind application date ranges – If planning a large purchase, avoid applying for new credit 3-6 months beforehand to prevent impacting approval odds.
- Limit transfer requests to 60-80% of limit – Leaving 20-40% of the new credit line open helps your credit utilization and provides flexibility.
- Continue paying original accounts – Keep paying minimums on existing cards until confirmation the balances are paid off through the transfers.
- Provide complete, accurate information – When submitting transfer requests, double check all account numbers, payment mailing addresses, balance details, etc.
- Meet balance transfer request deadlines – To get the intro 0% APR term, transfers must generally be completed within 60-90 days of account opening.
- Make payments on time – Set payment reminders and automate payments on the new balance transfer card to avoid missed payments and lost interest savings.
Risks and Downsides to Avoid
While balance transfers offer tempting benefits, they also come with some cautions businesses should keep in mind:
- Carrying a balance beyond the intro period – Try not to carry any remaining transferred balances past the 0% intro term. The standard APR will immediately apply.
- Opening too many new accounts – Each credit application results in a hard inquiry, which can temporarily lower credit scores if too many accumulate within a few months.
- Using the cards for new purchases – Avoid charging large new purchases to the card with the introductory APR, as new balances likely receive the standard rate.
- Missed balance transfer deadlines – Delayed or incomplete balance transfer requests won’t qualify for the 0% intro rate.
- Late payments on new cards – Just one payment over 30 days late can cause forfeiture of the intro terms and trigger penalty APRs.
- Forgetting old accounts – Don’t forget to close old credit card accounts with $0 balances after completing balance transfers. Keeping unused accounts open negatively affects credit utilization.
With proper diligence around these potential pitfalls, businesses can avoid disasters and make balance transfers work to their benefit.
Alternatives to Balance Transfers
Balance transfers allow temporary interest savings, but don’t actually reduce overall debt levels. Here are a few alternatives to consider:
Debt Consolidation Loan
Personal loans or business lines of credit can provide lump sum financing to pay off credit card balances at likely lower interest rates than cards. This simplifies payments into one predictable loan payment. Loans don’t help build credit history, but may offer better terms.
Debt Management Plan
Working with a credit counseling agency, businesses can enter debt management plans that negotiate lower interest rates and consolidated payments to creditors. This helps organize payments and ensures creditors are receiving set monthly amounts.
Debt settlement companies negotiate directly with creditors to settle account balances for a lump sum that is lower than the total amount owed. This requires discipline to save up enough to make the settlement offers. There are also tax implications for any forgiven debt.
Business Cash Windfall
If a business receives a cash infusion from other sources, whether investments or revenue spikes, consider paying off credit card debt entirely, rather than simply transferring it. Paying
Business credit card debt can quickly snowball, consuming cash flow with expensive interest payments. Balance transfers offer a temporary reprieve by allowing businesses to consolidate balances at a 0% intro APR for a set period of time. This pause in interest accumulation helps free up cash to aggressively pay down principal. However, balance transfers should be used strategically and carefully to avoid costly pitfalls. Businesses must diligently manage new transferred balances, make payments on time, plan to pay balances off entirely within the intro period, and close old paid off accounts. While not a permanent debt solution, balance transfers remain one of the most effective tools for temporarily reducing credit card interest burdens. When used properly, they provide an opportunity to attack balances and focus on the path to becoming debt-free. For any business struggling with high-interest credit card debt, exploring balance transfer options can be a smart early step on the journey toward financial stability and health. Partnering with an experienced financial advisor can also help analyze the pros, cons, fine print, and alternatives to determine the wisest strategies. At 5 Star Processing, we provide customized payment solutions to help businesses streamline financial operations and remain nimble. Our secure, efficient platform powers all types of transactions and payments globally. Managing business finances is complex enough without the burden of credit card debt. Contact us today to discuss solutions tailored to your needs.