Credit card balance transfers are a way of moving money you owe on one credit card to a different credit card with a lower annual percentage rate.

Credit card companies offer balance transfers to both new and existing customers as a way to entice you to carry a balance on their credit card so the company can earn money from the interest you pay.

Most often, credit card companies will offer 0% or low APR balance transfers for six months or a year to new customers. Some American Express cards offer a 4.99% balance transfer rate that does not expire.

This means that if you have a credit card debt with a 15% or 20% interest rate, you can move that debt to the new card and pay little or no interest on the debt for the term of the balance transfer offer. For this reason, balance transfers can be a wise way to reduce credit card debt.

Customers should be aware, however, that credit card companies apply payments to balances with lower interest rates first.

What this means is that if you transfer a balance to a new credit card to take advantage of a 0% balance transfer offer and then use the card to make purchases, those purchases will fall under the standard interest rate.

From that day forward, your payments will be applied to the transferred balance at 0% interest, while your purchases (and the interest charged on them), will continue to accumulate at the standard rate.

Additionally, some credit cards charge fees of up to 3% or the balance and a maximum of $100 or $150 for each balance transfer. While the savvy consumer can usually still save money by using balance transfers with fees, it’s important to read the fine print of any balance transfer offer to find out what you’re actually paying.