If you carry a balance on one or more credit cards, you may wonder if you could save money by transferring a balance to a card with a lower interest rate. Would you be able to pay off your balance sooner if more of your payment goes toward principle than interest? Adding a card also could increase your available credit and decrease your balance-to-limit ratio — a factor that could positively affect your credit score. Before you transfer a balance, it’s important to compare interest agreements. Use our Credit Card Transfer Calculator to help determine if a switch would be in your favor.
Credit Card Transfer Calculator Definitions
Balance-to-limit ratio – Otherwise known as utilization rate, this is calculated by dividing the total balances by the total credit limit of all your cards. A high BTL warns creditors of possible financial difficulty or the use of credit beyond your means.
Credit score – A number FICO assigns to consumers indicating their capacity to repay a loan. Most fall between 301 and 850. The top five determining factors include credit payment history, amount owed, length of credit history, new credit and types of credit used.
Principle – The amount borrowed or still owed on a loan, separate from the interest charges lending institutions and credit card companies add.
Credit card interest – Most U.S. credit cards are quoted in terms of nominal annual percentage rate (APR) compounded daily, in a range of 7 to 36%. The holder may change the interest rate over the course of your credit card agreement if you’ve had the card a year or more, a promotion is ending, you’re late with payments, your credit score has dropped substantially or you signed up for a variable interest rate.
Introductory term – An interval in which credit card companies offer a low annual percentage rate to motivate you to apply. APR goes up when the term expires.
Balance transfer fee – The amount charged by a credit card company to transfer a balance from another card, which is typically 3 to 5% of the total.