Beware: Balance Transfers Don’t Count as Purchases

0% APR

Here’s another tip for those of you out there looking to execute a credit card balance transfer.

If you don’t know what one is, read more about how they work before reading this post.

So whether you realize it or not, credit cards come with a variety of different interest rates (known as APRs), depending on how they are used.

The typical credit card can be used for purchases, which would be your standard purchase APR, for cash advances, which would be your cash advance APR, and for balance transfers, known as the balance transfer APR.

There is also penalty, or default APR, which takes effect if you happen to miss a payment, and promotional APR, which can apply to both purchases and balance transfers.

All of these collectively are known as your “pricing schedule” or “fee schedule,” as they detail all the interest rates and fees applicable to your account.

Look at the Promo APR

As mentioned, promotional APR comes into play when you execute a balance transfer.

Typically, credit card issuers will offer 0% APR for a certain period of time for balance transfers, generally 12 to 15 months.

During this time, you can make just the minimum payment each month and not worry about any interest accruing.

However, when the promotional period ends, the 0% APR will rise to the much higher purchase APR. At this point, interest accrues if you carry a balance, so it’s best to pay off all your credit card debt before this date.

Promo APR may also apply to new purchases as well, which is kind of where the credit card issuers try to “get you.”

They basically want you to keep making new purchases on the balance transfer credit card that should be intended only to pay off your existing debt.

In other words, it’s best not to mix up the two, as your main goal (and only goal really) with a balance transfer should be to reduce your debt, not just to offset interest.

That said, balance transfers and purchases are two very different things. A purchase is self-explanatory, but a balance transfer is in a category of its own, and has an APR of its own.

So when you execute a balance transfer, the balance transfer APR applies. But, and this is an important but, once the promo APR ends, the purchase APR kicks in on that balance.

Clearly this can be a bit confusing, which again, is how they get you.

[See: The balance transfer trap for more on that.]

That is, unless it’s a balance transfer for the life of the balance. In that case, the APR is fixed until the balance is paid off in full.

Either way, when you decide to transfer a balance you must understand that the balance transfer APR applies first.

In summary, balance transfers are not considered “purchases” and do NOT count as purchases, and as a result have their own unique APR. They also have their own limits and NO grace period, unlike purchases.

But they do count as payments, so when you execute a balance transfer, it will work just like a normal payment to the credit card issuer where you have the balance.

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