Balance transfer check: everything you need to know

From time to time, your credit card company may mail you balance transfer checks. You can use these promotional offers to consolidate high interest credit card debt and potentially save money.

If you received a balance transfer check or want to receive one, here’s how they work and how to use them.

What is a balance transfer check?

A balance transfer check is a paper check issued by a credit card company. You can write this check to transfer balances between credit cards.

But why do balance transfer checks exist at all?

“Credit card companies issue empty balance transfer checks in the hope that their customers will transfer debt from a competitor’s credit card to their credit card account,” said Ryan Inman, founder of Financial Residency and Physician Wealth Services.

“The idea is that the company issuing the balance transfer check will receive interest and potential fees from the client,” he said.

You also don’t have to be a customer of the credit card company mailing balance transfer checks to receive them. They can also be mailed to pre-qualified customers, according to Larry Duffany, financial advisor at Ramsey Preferred and founder of Raising Hope.

In this case, the credit card company that sent you the check is hoping to attract your business by using a 0% or low APR introductory offer. Using a balance transfer check would mean opening a credit card account to transfer the balance with the company that sent it to you.

How do balance transfer checks work?

A balance transfer check looks like any other check, but the difference lies in how it can be used. When you write a balance transfer check, you are using it specifically to pay off the balance of another credit card.

“You just write a check, like you would with any payment,” says Debbie King, personal finance expert and author of The ABCs of Personal Finance.

“When the old credit card company cashes the check, the funds will be charged to the new credit card company in addition to a fee — typically 3% to 5%,” she added.

Below is an example of how the balance transfer check works:

• Let’s say you owe American Express $5,000 and receive a balance transfer check from Citi in the mail.
• You write a balance transfer check to American Express for $5,000.
• After receiving it, this amount will be credited to your account, as a result of which your balance will decrease to $0.
• Meanwhile, you now owe Citi $5,000 per transfer, along with any balance transfer fees due for the transaction.

Some balance transfer checks may also give you the option to write the check in cash. You can then use the money to pay off debts other than credit card debt.

It is important to note that a balance transfer check is not a blank check and you can write it out for any amount you choose. The maximum amount you can transfer is determined by the credit card company that issued the check, similar to how credit card companies set your card’s purchase limit or cash out limit.

As for balance transfer fees, they apply to your balance in the same way as if you were transferring your balance online. Returning to the previous $5,000 balance transfer example, let’s say the credit card company charges a 3% balance transfer fee. Your new outstanding balance will be $5,150 ($5,000 x 0.03 = $150).

What to consider when examining a balance transfer check

If you would like to take advantage of the balance transfer check, it is a good idea to evaluate it like any other balance transfer or promotional funding offer.

“Always read the fine print,” Inman said. “The credit card that issued the check may offer 0% APR on this transfer of the balance, but a hard fee may be charged for the transfer of the balance,” he said.

If you receive a balance transfer check in your inbox, be sure to check the starting and regular annual interest rates, as well as the terms of the promotion, to find out how long you will enjoy the interest free period.

When does it make sense to check the balance transfer?

Deciding when to receive a balance transfer check means learning what the benefits are for you. According to Nadia Malik, personal finance expert and founder of Speaking of Cents, there are three reasons to consider checking a balance transfer:

• You are sure that you have enough time to pay the balance in full before the end of the 0% APR period.
• You have the option to issue a check for yourself to get cash quickly.
• You want to transfer balances other than credit cards, such as from a personal loan.

“Balance transfer checks can help you consolidate debt and pay off existing accounts with low or no interest, which is ideal if you’ve accumulated a lot of debt,” Malik said.

When does a balance transfer check make no sense?

Checking a balance transfer may not be the best solution for debt consolidation if you don’t have a solid debt repayment strategy in place. King said that one of the most important requirements for receiving a balance transfer check is a commitment to pay off the balance on time.

“In many cases, you can save a lot of interest by taking advantage of zero-interest offers,” she said. “However, if you are not serious, then you pay additional fees that should go towards your debt.”

In other words, you should not use the balance transfer check as a procrastination tool. It’s also possible that checking the balance transfer could help you accumulate more debt.

“The debt relief offered by the transfer could lull people into a false sense of comfort that could tempt them to charge again,” Duffany said. “What is needed is not always a new loan, but a new way of relating to money,” he said.

Even if this isn’t a problem, you might want to avoid using a balance transfer check from a competing credit card company if the card you need to open doesn’t have a lot of appeal other than a 0% APR promotion. For example, if the card has a high annual fee, it may end up costing you money rather than saving you money.

Be aware that balance check fees can increase the amount you owe, which must be factored into your repayment plans.

In terms of balance transfer fees, there are some cards that do not offer balance transfer fees.

• The Navy Federal Credit Union Platinum* card offers variable annual interest rates from 6.24% to 18% and a $0 balance transfer fee. While many balance transfer cards offer a starting annual interest rate of 0%, their current annual interest rates tend to be much higher than the variable 6.24% to 18%.

But some fee-free balance transfer offers may not cover balance transfer checks, so it’s important to know upfront what you’re paying.

How to get a balance transfer check

If you would like a balance transfer check, you can wait for your credit card company to mail it to you. But the easiest way to get a balance transfer check is to call the credit card company and ask for it.

Be aware that some credit card companies do not issue balance transfer checks. For example, American Express and Capital One offer balance transfers exclusively online.

Balance transfer checks are available from the following credit card companies:

Discover offers cash checks, but these are treated as cash advances, not balance transfers.

This is important to note because you will be subject to an annual cash advance rate and cash advance fee, with interest accruing on the balance up front rather than the terms of the balance transfer.

Balance transfer check alternatives

If you are looking for ways to consolidate your debt, there are other options besides checking the balance transfer. Malik recommended considering the following options for pooling low-interest debt:

• Home secured loan
• Equity line of credit
• Unsecured personal loan
• 401(k) loan

Each has its pros and cons. For example, in the case of a home equity loan, the upside is the fixed interest rate, while the downside is that you are effectively using your home as collateral for debt consolidation. A 401(k) loan means you’re borrowing money from yourself at low rates, but in the meantime, you can shortchange your pension.

With personal loans, you are unlikely to get a 0% interest rate as if you were checking a balance transfer. But you can lock in a low rate if you have a good credit score. And personal loans can offer fixed monthly payments, which can make it easier to budget for debt repayment.

Comparing all of the debt management options can help you decide which one makes the most sense.

bottom line

Balance transfer checks are handy if you need or want to consolidate high interest credit card balances. When considering balance transfer offers, be sure to understand how much you might be paying in fees or interest compared to what you could save.

Finally, check the fine print to make sure what you are using is actually a balance transfer check and not a down payment check, which can be a lot more expensive.

*All Navy Federal Credit Union Platinum card information has been independently collected by CreditCards.com and has not been verified by the issuer. These cards are no longer available on our website.