Can i pay someone with a balance transfer check

Credit cards often offer cheap balance transfers, but if you have no credit card debt to transfer you might have another, more profitable use -- writing the check to yourself. As long as you use this in the proper manner this could be free money. On the other hand, you could find yourself in a deep financial hole.

Table of Contents Show

Identification
How balance transfers work
Good balance transfer cards
Should I do a balance transfer?
How can I get cash from a balance transfer?
How do I use my Citi balance transfer check?
Can I deposit a Discover balance transfer check into my checking account?
How does balance transfer payment work?

Identification

Most credit card companies allow you to write a balance transfer check to any person or company, even yourself. When you write a balance transfer check to yourself it is called "arbitrage." Essentially, you lend your credit line to yourself. A common use of this tactic is to put the balance transfer funds, usually at zero percent interest if it is a new account, into an investment vehicle.

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Benefits

Unless the checking account earns interest, you should put the funds into a savings account or other investment that guarantees a return on your investment with no risk. Putting the money in a checking account could help if you use the funds to pay off other debts -- effectively eliminating finance charges on those accounts and fees you might incur if you paid by credit card.

Risk

Writing a check to yourself with borrowed funds is a dicey proposition, because it could backfire. Any credit card balance lowers your credit score by adding debt to your profile and increasing your credit utilization rate -- the percent of your credit card limit available. If you miss a payment by 60 days, you could trigger penalty rates. A single month's finance charges on a balance of, say, $30,000 would be several hundred dollars at the normal penalty rate of 18 percent. Also, the bank might charge a fee for the balance transfer.

Tip

Always read the fine print on the new card's agreement, including the rate on purchases -- the rate on new purchases may be much higher than the rate on transfers. If there are any fees, it might not be worth the risk to write a check to yourself. Also, you should be diligent about paying back bills. Frequently missing payments probably means you are a poor choice for arbitrage. The potential damage to your score and the possibility of a higher rate on new loan in the near future, such as a mortgage, usually makes this too risky.

Warning

Stocks and other investments that could lose value are a risky move, because you might end up owing more money than what you borrowed at the end of the teaser rate. Instead, put it in accounts that always grow, such as a money market or savings account, suggests Liz Weston of MSN Money Central.

A balance transfer is a type of credit card transaction in which debt is moved from one account to another. For those paying down high-interest debt, such a move can save serious money on interest charges if done strategically. For example, debt that's moved to a credit card with a 0% introductory APR offer on balance transfers could potentially be paid off interest-free.

Balance transfers come with certain costs and limitations, though. Generally, you'll have to pay a balance transfer fee — usually 3% to 5% of the total transferred. And if your balance transfer card's limit is low, you might not be able to transfer your full balance.

How balance transfers work

While the exact process for balance transfers can vary widely, here are the steps you generally have to take when working with major issuers:

1. Apply for a card with an introductory 0% APR offer on balance transfers or use an offer on a card you already have. To qualify for the best offers, you generally have to have good or excellent credit (typically, FICO scores of at least 690). Something to keep in mind: Same-issuer transfers generally aren’t allowed. For example, if you want to transfer a balance from a Citi card, you can’t transfer it to another Citi card.

2. Initiate the balance transfer. If you’re doing this online or by phone, you’ll need to provide information about the debt you’re looking to move, such as the issuer name, the amount of debt and the account information.

Sometimes, balance transfers can also be initiated using convenience checks, or the checks issuers send you in the mail. Before using one, though, read the terms to find out if it will count as a balance transfer and what your interest rate will be.

3. Wait for the transfer to go through. Once the balance transfer is approved, which could take two weeks or longer, the issuer will generally pay off your old account directly. That old balance — plus the balance transfer fee — will show up in your new account.

4. Pay down the balance. When that balance is added to the new card, you’ll be responsible for making monthly payments on that account. And if you pay it down during the introductory 0% APR period, for example, you could potentially save a bundle.

Credit card debt isn't the only type of debt you can transfer. Many issuers also allow cardholders to move other types of debt — such as auto loans or personal loans — to a credit card.

Use our calculator to see how much you could save

Good balance transfer cards

The goal of a balance transfer is saving money, so you want to choose a card that helps you minimize your costs. The ideal balance transfer credit card comes with three big zeroes:

A 0% introductory APR offer for balance transfers.

With such a card, you could potentially pay off your debt without spending a penny on interest and fees. Cards without transfer fees are rare nowadays, however, so you're likely to find only two out of three. Still, a card with no annual fee and a 0% introductory offer on balance transfers is quite valuable. Interest charges add up quickly and are often far more costly than a one-time 3% to 5% fee.

An important note: Some 0% APR offers apply only to purchases. To save money when moving over debt, you'll need one with an introductory 0% APR promotion on balance transfers. Make sure the card you apply for offers this.

Should I do a balance transfer?

If you can manage to pay off a balance in three months or sooner, or you can't qualify for a good 0% APR offer, paying off your debt as quickly as possible might be the best, most cost-effective option. And if you want a higher limit and don't mind paying some interest, a personal loan could be a good match; you can pre-qualify for one to see how much you could borrow and what interest rate you could get before accepting an offer.

But in general, a balance transfer is the most valuable choice if you need months to pay off high-interest debt and have good enough credit to qualify for a card with a 0% introductory APR on balance transfers. Such a card could save you plenty on interest, giving you an edge when paying off your balances.

How can I get cash from a balance transfer?

The easiest way to turn a balance transfer into cash is to use the special checks that credit card companies usually send with offers or with the monthly statement. These checks can simply be deposited into your checking or savings accounts.

How do I use my Citi balance transfer check?

Balance transfer checks work the same as a standard bank account check. Write the check out to the creditor you owe your existing debt to and mail it. The check accesses your Citi card's credit limit to pay off the old issuer.

Can I deposit a Discover balance transfer check into my checking account?

No, you cannot transfer a balance from your Discover credit card to a checking account. When you make a credit card balance transfer, you use a credit card to pay off an existing debt. However, you can use a check to transfer funds from your Discover credit card into your checking account.

How does balance transfer payment work?

A balance transfer allows credit cardholders to roll over their debt from an existing credit card account to another, usually to save on interest charges. Balance transfer credit cards offer a low introductory interest rate — commonly 0% APR — on transferred balances for a limited time.