Learn the pros, cons and essential details of a balance transfer credit card.
What is a credit card balance?
The term “credit card balance” refers to the amount of credit you have used on your card. This includes charges you’ve made, balances you’ve transferred, convenience checks you’ve used or cash advances you’ve gotten, such as at an ATM.
Credit card companies charge different interest rates on varying types of transactions. Your interest rate on purchases might be 15 percent, while the interest rate on a cash advance might be 25 percent.
To find out your credit card balance, check your monthly statement. You should find the following information:
- Balance on purchases and interest rate.
- Cash advance balance and interest rate.
- The transfer balance and interest rate.
- The remaining balance.
Your credit card statement also will provide you with figures that show how long it will take you to pay off your current balance if you pay only the minimum payment each month, and how much total interest you’ll pay in doing that.
You also will see how much you’ll have to pay each month to clear your balance in three years, and what your total interest will be if you pay off your card that way.
It’s important to pay attention to your credit card balance because affects your credit score, your ability to get more credit (such an auto loan or mortgage) and the interest rates you’ll get on future credit and loan offers.
Financial gurus have different advice on paying down balances. Some suggest paying down the card with the lowest balance, no matter the interest rate, to give you a psychological boost.
Others recommend paying down the credit card balance with the highest interest rate so you pay less as you’re paying down your card. If possible, use money that is generating you a smaller return than your interest rate.
If you can transfer a balance from one card to another and save money after figuring in the transfer fee and reduced interest rate, use the money you save not paying that higher interest to pay down your balance.
Credit card balance example
If you have a credit card with a $5,000 line of credit and you’ve made $500 worth of charges, received $100 worth of ATM withdrawals and transferred a $1,000 balance from another card to this card, your overall credit card balance, or credit used, is $1,600.
However, for purposes of charging you interest, your card company will note on your statement that you have three balances: one for purchases, a second for advances and third for balance transfers.
As your transactions generate interest, your balance will increase.