Credit Card Balance Transfers
A credit card balance transfer moves high-interest debt to a new card with 0% APR for a set period, usually 12 to 18 months. This helps save on interest and pay off debt faster, but be aware of transfer fees and the need to pay off the balance before the promo rate expires.
What Is a Balance Transfer?
A balance transfer involves moving an outstanding debt from one account to another. While you’re still responsible for repaying the balance, you may benefit from features like introductory interest rates, a lower APR once the promo period ends, or reduced fees for missed payments, depending on the new credit line’s terms.
Balance transfers are commonly used to consolidate credit card debt but can also apply to a variety of other debts, such as:
- Charge cards
- Store cards
- Gas cards
- In-store credit lines (e.g., for furniture or electronics)
- Personal loans
- Auto loans
How Does a Balance Transfer Affect Your Credit?
On the positive side, transferring a balance to a new credit card opens up a new line of credit, which can increase your available credit limit and lower your overall credit utilization ratio. This can have a favorable impact on your credit score.
However, there are potential downsides to consider. Applying for a new card for a balance transfer results in a hard inquiry on your credit report, which may cause a temporary dip in your score. Additionally, transferring a large balance and maxing out the new card could hurt your credit utilization ratio, negatively affecting your credit score.
If you miss payments or fail to pay off the balance before the promotional period ends, the interest rate could rise, leading to more debt and further harm to your score.
In summary, using balance transfers responsibly and making timely payments can improve your credit score, but it’s crucial to weigh the risks and have a solid plan for paying off the balance.
Pros & Cons of a Balance Transfer
If you’re considering a balance transfer, here are some advantages:
- You can save money on interest for a limited time, even after factoring in transfer fees.
- You could pay off your balance faster by using the interest savings to reduce your debt.
- You may improve your credit score by lowering your credit utilization ratio.
However, there are some disadvantages to be aware of:
- You may face a fee of 2% to 5% per transfer.
- After the promotional period, your interest rate could increase significantly.
- If you transfer federal student loan debt to a credit card, you may lose out on benefits such as repayment or forgiveness options, as well as tax deductions on interest.
What Are The Benefits Of Transferring Credit Card Debt?
When you only pay the minimum payment on a credit card with a 15% APR, more than half of each payment goes toward interest charges. With a 20% APR, two-thirds of your payment could be eaten up by interest instead of reducing your balance, which can quickly feel overwhelming.
Short-Term Benefits
Transferring your existing credit card debt to a card with lower interest rates, or even 0%, can provide relief from high-interest charges, allowing you to focus on paying down the principal. With lower interest rates, more of your payment goes toward reducing the balance, helping you eliminate debt faster.
Long-Term Benefits
By removing the pressure of paying high-interest charges, you have more flexibility in your budget, which can be useful when managing multiple debts. For example, you can prioritize paying off high-interest debt first or work on boosting your cash reserves to improve your debt-to-income ratio, especially if you’re planning to apply for a mortgage. A balance transfer can help free up cash flow for other financial goals or to tackle more urgent debt.
Should I Transfer My Credit Card Balance?
Many wonder if a balance transfer is the right solution for them. While it can help reduce debt, it’s important to avoid increasing your debt by running up new charges on the old or new cards.
A balance transfer can be a useful tool for achieving both short- and long-term financial goals, but it’s not always the best option for everyone. It’s essential to consider the costs, potential impact on your credit score, and the risk of making your financial situation worse.
Here are situations where a balance transfer may not be beneficial:
- You have over $5,000 in credit card debt
- You have poor credit
- You’re unsure if you can make the minimum payments
- You can pay off the debt in a few months
- Your debt exceeds the new card’s credit limit
- The balance transfer fee outweighs the savings
To make the most of a balance transfer, use it as part of a strategy to become debt-free, rather than just a quick fix.
Choosing Which Balances To Transfer
Sometimes, you may not be approved for a high enough credit limit to move all your balances, or you might get a generous limit but a short 0% APR period. In both cases, you’ll have a limited time to pay off the transferred debt. These are common hurdles, even for those with good credit. If this happens, it’s important to prioritize which balances to transfer first.
How To Transfer Credit Card Balances
The process of getting a balance transfer is pretty straightforward. It’s similar to applying for a new credit card but can take a few weeks from the application to approval. Here is an overview of how long it will take to apply, how long it might take to get approved, and what you can expect to be charged.
Step 1: Pick The Right Balance Transfer Offer
Balance transfer credit cards work like regular credit cards, with interest rates, late fees, and approval requirements based on your credit score. However, they’re specifically designed to help you move existing debt—often with low or 0% introductory APRs.
When choosing a card, focus on:
- Introductory APR and how long it lasts
- Balance transfer fees (flat rate or percentage)
- Standard interest rate after the promo period
If you already have a balance transfer card, skip to Step 2.
Step 2: Start The Balance Transfer
You can often request a balance transfer during your online credit card application—sometimes even before approval. If you already have the card or didn’t apply online, you can call the card issuer to start the process.
You’ll need to provide the account numbers and amounts you want to transfer. Most issuers will send payment directly to your original creditors, though some may give you balance transfer checks to use instead.
Know Your Transfer Limit
Balance transfer limits are usually 90–95% of your approved credit line, which depends on your income and credit score. So, if you’re approved for $7,500 and have $10,000 in debt, you’ll only be able to transfer a portion.
Step 3: Make Sure The Transfer Is Complete
Until your transfer is officially processed, keep making payments on your old accounts—especially if a due date falls within two weeks of starting the transfer. This helps you avoid missed or late payments while waiting for the move to finalize. Once the transfer is complete, the balance transfer fee will be added to your new card’s total balance, not charged upfront.
Step 4: Pay Off Your Balance Strategically
Interest-free doesn’t mean payment-free—you’ll still need to make monthly payments on your transferred debt. The minimum is usually $25–$35, but aim to pay much more to eliminate the balance before the intro APR expires.
Use your budget to cut non-essential spending and apply extra cash toward debt. The more you pay now, the less you risk paying later when interest kicks in.
How The Credit CARD Act Impacts Balance Transfers
The Credit CARD Act of 2009 introduced protections for credit card users, including a rule that payments must be applied to balances with the highest APR first.
- The Good: If you transfer a portion of your balance from a card with different APR types (like purchases and cash advances), your payments will first go toward the portion with the highest interest—helping you save more.
- The Not-So-Good: Many balance transfer cards offer 0% APR only on transferred balances—not on new purchases. If you use the card to buy things, those charges could get paid off first, leaving the transferred balance untouched and potentially racking up interest when the promo period ends.