Credit Cards Balance Transfers: A Guide for Small Business Owners
Picture this: you get a credit card for business expenses that comes with a high APR. Maybe it’s because you didn’t know any better, needed quick credit for an emergency, or simply didn’t have the credit score to qualify for better offers. No matter what the reason, you’re not alone. Even the savviest consumers and business owners can fall victim to high-interest credit cards.
Once you’ve used the card, you’re stuck with this high interest rate until you pay off the debt, right? Actually, you have an alternative that can lower your interest rates, potentially saving hundreds or even thousands in interest. That alternative? Transfer your balance to a credit card with a lower APR.
If saving money on interest is something that, well, interests you, read on to learn everything you need to know about balance transfer credit cards.
Table of Contents
- What Is Balance Transfer?
- What Is A Balance Transfer Fee?
- How Long Do Balance Transfers Take?
- Different Types Of Balance Transfer Offers
- The Benefits Of Business Credit Card Balance Transfers
- Balance Transfer Drawbacks
- I Want To Do A Balance Transfer – Where Do I Begin?
- Frequently Asked Questions
What Is Balance Transfer?
To put it simply, a balance transfer occurs when existing debt is transferred from one credit card to another. The transfer won’t eliminate the debt. While the first credit card will be paid off, the balance will simply be applied to the new card.
Is A Business Credit Card Balance Transfer Like A Normal Balance Transfer?
The primary difference between personal and business credit card transfers is how they are reported. Monthly payments, late payments, and defaults from normal credit cards affect your personal credit score, while business credit card payment history is typically reported to business agencies.
What Is A Balance Transfer Fee?
A balance transfer fee is a one-time fee charged by the issuer of a credit card for completing the transfer. This fee varies by company but typically runs 3% to 5% of the total transferred balance. When compared to long-term savings on interest, these fees are quite minimal for many business owners.
What To Watch Out For
You’ve transferred your balance to another card, and it’s all smooth sailing from there, right?
Not exactly. It’s important to note that balance transfers come with expiration dates. This period of time varies by issuer, but you can typically expect the introductory APR to expire between 6 and 18 months after making the transfer. Once the low interest rate disappears, the balance will be subject to the standard APR which could be 15%, 18%, or even higher.
Making a late payment could also result in losing the introductory APR; all balances would then become subject to the company’s standard APR.
Be aware that new purchases charged to the credit card will most likely not be covered by the introductory APR offer. Instead, new purchases are typically subject to the standard APR. Make sure you fully understand the terms, conditions, and rates surrounding new purchases before making your move.
How Long Do Balance Transfers Take?
Once you’ve picked a balance transfer card that’s right for you, the process of completing the transfer is quite simple. All you need to initiate the transfer is information such as account numbers and the balance amount. Once all of the information has been submitted, you can expect the transaction to be completed in about two weeks.
Different Types Of Balance Transfer Offers
There are a few different types of balance transfers available. Make sure to shop around to find the card that offers the most savings while also providing a competitive interest rate after the promotional period has expired.
One of the first types of balance transfers is the no-fee offer. These balance transfer cards do not require you to pay the typical 3% to 5% transfer fee, which could add up to big savings on larger balances.
Another popular type of balance transfer is the 0% APR offer. These balance transfers offer a 0% introductory rate, making it easier to pay down or pay off debt. As previously mentioned, these offers do expire, so it’s important to be aware of standard APR rates and try to pay down as much of the debt as possible during the introductory period.
|Credit Card||0% Introductory Period||Next Steps|
|American Express Blue Business Plus||0% APR on purchases and balance transfers for the first 12 months||Compare|
|Chase Ink Business Unlimited||0% APR on purchases for the first 12 months||Compare|
|American Express Blue Business Cash||0% APR on purchases and balance transfers for the first 12 months||Compare|
|Capital One Spark Cash Select For Business||0% APR on purchases for the first 9 months||Compare|
|Bank of America Business Advantage Cash Rewards Mastercard||0% APR on purchases for the first 9 billing cycles||Compare|
The Benefits Of Business Credit Card Balance Transfers
There are several benefits to taking advantage of a business credit card balance transfer. For starters, the money saved on interest allows business owners to pay down their debts much faster, which not only provides more unused credit but can also boost the credit rating of the business.
A business credit card balance transfer is also an easy way to consolidate debt and lower credit utilization. For example, if a balance of $4,000 on a card with a $5,000 limit is transferred to a new card with a $20,000 limit, credit card utilization on the new card is not as high, and additional purchases up to the higher limit can be made, keeping all expenditures on one card.
In some cases, additional debt balances can be transferred to a business credit card. High-interest loans and installment payments can sometimes be transferred, depending on the card issuer’s terms. This could save in interest and help reduce debt over a shorter period of time.
If business purchases have been made on a personal credit card, transferring the balance to a business card will also help boost your business credit, which is critical for obtaining business loans, equipment financing, and other business-related financial products.
Balance Transfer Drawbacks
Balance transfer cards aren’t without their drawbacks. A big mistake that many business owners and consumers make when signing up for these cards is not looking beyond the introductory APR. Sure, it sounds great in theory, but reading the fine print can reveal caveats such as a higher interest rate than what is currently paid. All terms and conditions should be fully understood before making the transfer.
It’s also easy to believe that once the introductory rate expires, the remaining balance can be transferred to another card. In reality, this can harm your credit score. Bouncing from card to card and keeping a high balance makes you a riskier venture, which could harm your chances at receiving additional financing when needed and can potentially lead to reduced credit limits on existing cards. Remember, a balance transfer card is meant to pay off debt more quickly and should be used responsibly.
I Want To Do A Balance Transfer – Where Do I Begin?
- Understand your current financial situation. What is your current balance, credit limit, and APR? Knowing this information will help you make an informed decision on whether making the transfer is the smartest financial move.
- Explore your options. If you’ve received a preapproved offer (or several), consider these first. Weigh the new terms and conditions with the terms and conditions of your old card or loan to see which are better. Remember to think over the long term and look beyond the introductory APR. Also, note that you typically cannot transfer balances between two cards from the same bank or provider.
- Choose a card. Apply for your chosen card once you’ve determined which best fits your needs.
- Wait for approval. Once approved, you can either use the credit card company’s online system or call customer service to provide details on the balance transfer. Remember, you will need balance amounts and account numbers to complete the transfer.
- Pay off the debt. Once the transfer is complete after 1 to 2 weeks, work to pay off your debt as quickly as possible. Don’t forget that the introductory APR expires, so your goal is to pay off as much as possible before this period ends.
Frequently Asked Questions
Is it better to pay off one credit card or reduce the balances on two?
The most effective way to tackle credit card debt is to focus on paying down the balance of the card with the highest interest rate. Chipping away at this debt will cut down on the interest you’re paying and help you pay off the card faster. After one card is paid off, continue this method to pay off all of your cards. Remember, even though you’re keeping the focus on one card, you always want to make sure you’re making at least the minimum payment on all credit accounts.
How do balance transfers affect your credit score?
Applying for a credit card does show up as an inquiry on your credit report, which can lower your score. It’s important to pick just one card with the best terms to avoid multiple dings on your credit. Transfers can be great for your credit score over the long term. In addition to potentially lowering your credit utilization, a lower interest rate allows you to pay off your debt quickly, which can boost your score.
Does a balance transfer automatically close the account I’m transferring from?
A balance transfer does not automatically close your old credit account. If you wish to close your account, contact the creditor once the balance has been transferred.
Can I transfer a personal credit card balance to a business credit card?
In some cases, yes, but it depends upon the terms of the company. It’s important to note that keeping business and personal expenses separate is often recommended, so this should be a consideration before a transfer is initiated. It is also important to remember that business cards typically require a personal guarantee, so you will still be held liable for the transferred debt.
Can I transfer a business credit card balance to a personal credit card?
Again, in some cases, you can do this, provided that both accounts are in your name. However, as previously mentioned, it’s typically recommended to keep business and personal finances separate for bookkeeping purposes.