A balance transfer is the act of moving funds from one financial account to another. You can use a balance transfer to pay off a personal debt or debt accumulated by a friend or family member. However, like any other financial service, balance transfers should be used wisely.
Electronic Funds Transfer Vs. Balance Transfers
If you go online or use the telephone to pay off a bill for a friend, you and your friend should both be prepared to verify your identity if you need to speak to a representative. However, many companies employ a pay-by-phone system that will only connect you with an agent if you have trouble following the vocalized prompts issued by the computer. These services ask for your bank's name and routing number, your checking account number and, occasionally, a check number when processing your payment. When you use a system like this to transfer funds from the balance present in your checking or savings account, you are actually conducting an electronic funds transfer (EFT) transaction.
Introductory Balance Transfer Offers
Credit card applications, both those received in the mail and available online, typically contain a section presenting an introductory balance transfer option for your immediate use when you apply for the card. Sometimes the amount of credit mentioned in the initial promotional literature is not the credit limit offered to you. If you attempt to secure a introductory balance transfer option on a new credit card only to receive a lower credit offer that doesn't cover the funds needed for your friend's debt, you have a time period of 10 days to cancel the balance transfer, according to the U.S. Department of the Treasury.
Online Balance Transfers and Balance Transfer Checks
Occasionally, credit card companies send balance transfer checks in the mail or post special balance transfer offers on your account page on their website. Some offers feature low or no interest charges for six months while others will feature moderate interest charges until the balance transfer is paid off. You can write a balance transfer check out to your friend's creditor and pay off their debt in most instances. However, it is important to note that many credit card companies will not accept a balance transfer check from their company to pay off a different account that they also hold.
Balance Transfer Risks
If you are paying off a bill for a friend as a gift, a balance transfer will carry no more risk than any other credit service you utilize. However, it is important to be cautious if you are seeking a balance transfer to pay off a bill while allowing your acquaintance to pay the debt off. An initial low 5 percent interest rate can easily balloon to 22.99 percent when the promotional period on a balance transfer expires. This will make paying off the debt more difficult. You should also consider that if you are completing a balance transfer on a credit card you maintain a balance on that your regular monthly payment will go toward the promotional balance transfer first while your purchases continue to accumulate the full interest rate applied to your card. Before completing a transfer, know that you or your friend can easily pay off the debt within a reasonable time frame.