Credit card balance transfers: How they work and if they’re worth it

J@vier M@rceli
credit cards

Credit card interest rates are notoriously high: The average was 16% at the beginning of July. If you don’t pay off your balance each month, you can end up buried under a mountain of debt. A balance transfer can help you offload your debt from a high rate card to one with a lower rate — at least for a while.

A balance transfer can be a smart move, but it’s important to understand exactly how they work and all of the implications, including the impact on your credit and how it fits into plans to pay down your debt. Read on to learn everything you need to know about balance transfers. 

How balance transfers work 

The idea behind a balance transfer is simple — move one or more high interest balances onto a new card with a lower annual percentage rate. Many of the best balance transfer credit cards offer low introductory APRs, which let you pay down your balance while accruing less interest. There is a catch, though: balance transfer fees. These fees, which are usually between 3% and 5% of the balance being transferred, can add up quickly — particularly if you’re moving large balances. 

A balance transfer card won’t magically help your debt disappear, but if used correctly, it can help you pay down a balance much sooner while saving you money on interest and fees.

Is a balance transfer a good idea?

A balance transfer can be an excellent way to tackle credit card debt, especially if you can commit to paying off the debt within an introductory period. 

But a balance transfer can also go sideways. If you can pay off your debt in just a few months, you might wind up paying more in fees than you would in interest on your current card. In this case, it’s best to just pay off your balance as soon as possible rather than transferring it.

You should also steer clear of balance transfer cards if you’re easily tempted by credit cards. Opening a new credit card and freeing up credit on your existing ones may only encourage you to spend more.

Additionally, a balance transfer probably won’t work for you if you have poor credit. The best balance transfer deals are generally only available to those with good credit, and if you don’t qualify for a low introductory APR, you likely won’t save enough money to warrant the hassle.

Lastly, you might need to consider a longer-term solution if you have substantial credit card debt, like a debt consolidation loan. Otherwise, you run the risk of paying too much in transfer fees and interest down the line.

How to initiate a balance transfer

If you think a balance transfer card can help your finances, here’s how to get started. 

1. Review your debt 

Before you even consider a balance transfer card, take inventory of your debt. It’s important to know exactly how much you owe on each of your cards, your current interest rates and minimum monthly payments and how much you can afford to pay each month. Look at how much you’re actually paying in interest each month — your APR might not mean much to you in theory, but seeing how much of your monthly payment went towards interest alone can put things into perspective.

2. Do some research

Once you have a handle on your debt, you can shop around for the best balance transfer credit card. If you already have a credit card, your issuer might even send you balance transfer offers through your account or email, or may even mail you balance transfer checks, which you can fill out to initiate a balance transfer. 

Many companies offer promotional deals where you can get a 0% APR for a certain amount of time after opening the card. These introductory periods often last for about 12 months — though some go longer.

The introductory interest rate is important, but it’s not the only factor to consider. A low introductory interest rate is designed to entice you — but if you can’t pay off the balance by the end of the intro period, you’ll be stuck with another high APR.

Next, compare balance transfer fees. Most companies charge between 3% and 5% of the balance you transfer. This fee can really add up with a large balance — a 3% transfer fee on a $5,000 balance is $150. 

Finally, understand the credit requirements before applying. While some cards will approve borrowers with average or below-average credit, the best deals are often reserved for applicants with good or excellent credit. It may not be worth applying and taking the hit on your credit if you don’t think you’ll be approved.

To apply, you’ll provide information about your income and employment and the credit card company will run a credit check. If you meet all the requirements, you’ll likely be approved.

3. Authorize the balance transfer

 Once approved, you can start the balance transfer. This can usually be done by check, online or by phone. To pay off another card by check, your balance transfer card company will write a check to the card issuer you’re paying or will send you balance transfer checks by mail. If done online or by phone, you’ll enter in your account information for the card/s you’d like to pay off. 

The balance transfer process usually takes five to seven business days — but it can take up to three weeks. As such, you’ll want to continue to make minimum payments due on the card you’re paying off until the transfer officially goes through — otherwise you risk getting dinged for a late payment on your credit report.

Once the transfer goes through, it will appear as a payment on the credit card you’re paying down. If you’ve transferred the entire balance, the balance on your statement should be zero. The balance you’ve transferred will appear on your new credit card statement.

4. Make regular payments

It’s crucial to pay down the balance within the introductory period before the higher interest rate kicks in. Otherwise, you’ll be trapped in a costly cycle, transferring balances from card to card, racking up fees and debt.

Instead, divide your total card balance by the number of months of your introductory period. This will give you an approximate target payment for each month. 

What to look for in a balance transfer card

A balance transfer card is only helpful if it can help you save on interest or fees. Here’s what to look for when searching for one.

  • Low introductory APR: Many cards offer an introductory rate of 0% — if you qualify. If you don’t have great credit, try to lock in the lowest introductory rate you can find.
  • Long introductory period: The longer the introductory period, the longer you can save on interest and the less you have to pay each month. Many cards have introductory periods of 12 months, but some offer introductory periods as long as 18-24 months, depending on your credit history. 
  • Low transfer fees: These fees can add hundreds of dollars to your balance when you transfer your credit card debt. There are a few no-fee transfer cards available, though the approval process can be harder. Calculate how much transfer fees will end up costing you when comparing balance transfer options, so you’re not surprised later on.

What happens if I still have a balance after the introductory APR period expires?

While we encourage you to try to pay off your entire balance before the introductory APR period ends, sometimes that’s not always possible. If you can pay off the balance in a few months, that’s generally your best course of action. But, if you’re worried about the new interest rate, it’s helpful to do the math and find out if the interest you’ll accrue will be less than the cost of another balance transfer. Alternatively, you could consider a debt consolidation loan if you won’t be able to pay down your balance within another balance transfer card’s introductory period.

It’s possible to transfer your remaining balance to a new balance transfer card, but this strategy can be risky. Not only will you take a ding on your credit report when applying for a new account, but you also run the risk of getting denied or not being approved for the amount you need. If you are approved, you’ll also have to pay another balance transfer fee. A balance transfer card works best when it’s used as a short-term debt solution strategy — continuing to transfer balances and pay fees can encourage unhealthy credit habits and may ultimately cost you more money in the long run.

It’s always preferable to create a debt repayment plan to pay off your balance during your initial introductory period, if possible.

Can I use a balance transfer card to make purchases?

Technically, yes. But no. 

There are three reasons why doing so is a bad idea. First, you’ve secured your balance transfer card to help pay down your debt. Adding to it will only increase the amount you owe. Second, your balance transfer APR usually applies only to the amount transferred to your card (though some cards feature an introductory APR period for spending, too).

Though you might have locked in a 0% introductory balance transfer APR for 12 months, the APR for purchases could be 13.99%. This means you’ll be adding interest and additional spending onto your existing balance.

When you begin using your balance transfer card as a regular credit card, you also increase the risk of not paying down your transferred balance within the introductory period. Not only are you increasing the amount you’ll need to pay each month, but you’re also making it harder to track your balance transfer debt from your new purchases.

Alternatives to balance transfers

If you have credit card debt of $10,000 or more, a personal debt consolidation loan may be worth considering. Like credit cards, these loans are unsecured, and although their interest rates are more than the 0% introductory offer on many credit cards, their regular rates are often much lower than the standard APR on credit cards.

Other options to consider: a home equity loan, home equity line of credit (HELOC) or cash-out refinance. These loans are secured, which means the interest rates will be significantly lower than a credit card or personal loan. But there are risks, too: any time you borrow from your home equity, you’re putting up your home as collateral. If you can’t make your payments, you could lose your home. 

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