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How Credit Card Balance Transfers Work

13 min read
John Ganotis By John Ganotis Updated Oct 03, 2019

A balance transfer is essentially a way to pay one credit card with another, or transfer debt from one card to another. Usually, there are fees involved, but if used responsibly a balance transfer could save you a lot of money on interest.

Have you found yourself in credit card debt? Are you paying interest every month? Does it feel impossible to make a dent in your credit card balances because you’re paying so much interest?

A balance transfer is a way to move credit card debt from one credit card to another with the goal of saving money on interest.

When you’re paying interest on a credit card, transferring debt to a card with a lower interest rate can help you reduce the amount of interest you’re charged as you pay it off.

Think of a balance transfer as a way to pay off your credit cards with another credit card.

Some balance transfer credit cards come with a 0% APR for a limited time. This means you can temporarily pause interest while you pay off your credit card debt.

Remember, you can avoid credit card interest on most cards by paying your balance on time, in full, every month. But if you are already in debt and have a plan to pay it off, a balance transfer may be one way you can strategically reduce the amount of interest you pay.

Keep in mind that a balance transfer is not magic. You will still owe the debt, and if you don’t pay it back in a timely manner you will end up paying lots of extra money in the form of interest.

Keep reading to learn more about:

Understanding Balance Transfer Offers

While people might say “balance transfer credit card,” a more accurate phrase description is “credit card offer favorable to balance transfers.”

Pretty much any credit card will let you transfer a balance away from it, and many credit cards will let you transfer a balance to them.

Some credit cards, however, are designed to have terms that are more favorable for incoming balance transfers due to their:

  • fees on incoming balance transfers
  • regular interest rate on balance transfers
  • limited-time low introductory APR on balance transfers

Fees for balance transfers

Balance transfers are not usually free.

Even those offering an introductory zero percent interest rate generally come with a cost in the form of a balance transfer fee. Most credit card issuers charge between 2% and 5% of the balance as the fee for the transfer, with a minimum fee of about $5.

You will usually see this fee show up separately from the transferred amount on the statement of the card you transferred the balance to. Some balance transfer offers waive the fee if the transfer is made within a certain number of days of opening the card.

Introductory APR periods

Many cards designed for balance transfers have an introductory period with a lower APR on balance transfers.

Banks often use these offers to attract new customers. This is why you can’t, for example, transfer a balance from one Citi credit card to another Citi card — the bank isn’t getting a new customer or taking on any new (potentially very profitable) debt.

The introductory APRs on these cards are often 0% for 12, 18, or 24 months. While a 0% APR can be very helpful for avoiding interest, they can also open the door to more credit card debt. We think it’s important that you have a plan for how you’ll pay off all or most of the debt during the introductory period instead of transferring a balance to buy some time without a solid plan in place.

Some people (hopefully not you!) will go through this unfortunate scenario:

  1. You open a credit card with a 0% APR balance transfer offer.
  2. You transfer debt to that card, and then only pay the minimum payments every month on it.
  3. You continue to rack up more credit card debt on the card the balance was transferred away from.
  4. Your 0% introductory period runs out. Now you’re stuck paying high interest on two cards, you’re deeper in credit card debt, and you don’t have the opportunity to transfer either balance to another card.

This is a great way to dig yourself into a deep financial hole and get buried in debt. Also, increasing your credit card debt after transferring a balance to a new card is a great way to damage your credit, since it can increase your credit utilization, a major factor in credit scores.

If something prevents you from paying off a transferred balance before your interest rate increases, start looking for another balance transfer opportunity. Although another transfer could help you avoid a steep increase in the APR, continually transferring balances from one card will keep you in credit card debt, limit your financial freedom, and probably keep you from maximizing your credit scores.

What types of balance can I transfer?

Credit cards can be used for balance transfers from many different kinds of accounts.

Other credit cards are the most obvious choice, but auto loans, school loans, personal loans, and other installment loans can be eligible as well.

You won’t be able to transfer a balance between cards from the same card issuer. So you can’t transfer a balance from one Chase card to another, for example, or one Bank of America card to another. Credit card issuers don’t want you to take advantage of them by just transferring a balance back and forth between their cards.

Other than that, most credit card issuers will allow you to transfer a balance from practically any account that requires a monthly payment. But when it comes to installment loans, it’s not necessarily a good idea to transfer the balance just because you can.

This is because installment loans don’t hurt your credit much compared to credit card debt. Even if you have a very large installment loan, it’s better than having that debt be on a credit card. Installment loans also usually have lower interest rates than credit cards anyway. So most of the time it’s better to just let your installment loan be, and pay it off as quickly as you can.

In some cases, however, it might be a good idea to transfer an installment loan to a card with a 0% APR. This could be true if your installment loan is very small, or has a very high APR. You may be able to save some money by paying it off on the card instead. You’ll have to do some math to figure out the total amount you’ll end up paying in each case.

Balance transfers sometimes come with certain terms and limitations. American Express, for example, requires the account from which the debt is coming to be in your name. Be sure to check the terms that come with your card to learn exactly what you can do, and contact your card issuer if you have any questions.

Should I transfer my balance?

Getting a card with a zero-interest introductory rate, especially if that teaser rate is good for 21 months, as some are, can save hundreds of dollars in interest and help you pay off your balance much sooner. As long as you’re not seen as risky by creditors, there may be some good balance transfer offers available to you.

Someone who has gone through a period of unemployment or underemployment, for example, but now has a better paying job and can pay off the debt, could benefit from a balance transfer offer.

However, people with poor credit scores or those going through a period of financial distress may not be able to qualify for a new credit card with favorable balance transfer terms. If this describes you, you may need to consider other options like credit counseling or perhaps even bankruptcy.

It’s up to you to decide whether a balance transfer offer is a good idea in your situation. Like many tools in your financial toolbox, this one is sharp. Develop a strategy for using it to get what you want and wield it with a healthy supply of discipline.

Even if you can qualify for a balance transfer offer, consider your plan for paying down the debt before you pull the trigger. You may put your financial future at risk if you transfer a balance to defer interest and hope your situation will improve without a solid plan to pay off your debt.

If you’re considering transferring a balance away from an installment loan, think carefully. This isn’t typically necessary, even if the loan is very large. In most cases it will be better off as an installment loan, as long as the APR isn’t too high.

Examples: Two simple balance transfer scenarios

Here are two quick examples to show how a balance transfer might be able to save you money.

Let’s say you owe $1,000 on a credit card with a 20% APR, and you’re only able to pay $30/month.

If you pay only $30 every month and don’t spend any more on the card, it would take over 4 years to pay off the entire balance. In that time, you’d also be spending over $470 in interest on what was originally a $1,000 balance! When you only pay the minimum on a card, most of what you’re paying is interest. This is why it can feel impossible to make a dent in debt. Learn more about how paying a credit card and minimum payments work here.

Card with 0% intro APR on balance transfers

In this first scenario, let’s say you apply for a new credit card with a 0% intro APR for 18 months on balance transfers. You’re approved with a $2,000 credit limit.

This leaves you with enough room to transfer your entire balance from the first card to the new card. This particular card’s terms have no fee on the balance transfer if the transfer is made in the first 60 days, which you plan on doing. The card has an introductory 0% APR period on balance transfers for 18 months, and then a regular APR of 20% takes effect on the card, which happens to be the same regular APR your previous card had.

If you continue to pay $30 each month after transferring the balance, that money will go much further. For the first 18 months, the entire $30 you pay each month will go to paying back your principal (the $1,000 you borrowed) instead of paying interest. Then, in month 19, when your regular interest rate kicks in, you’ll owe $437.67. If you continued paying $30 per month at that point, it would take an additional 18 months to pay off the remaining balance, since you’d be paying interest on the remaining balance as you pay it down. The total interest you would pay in the remaining 18 months after the 0% introductory APR would be $75.65.

So, in this example, even though the two cards have the same regular APR, because of the introductory 0% APR you would paying off the original $1,000 debt over one year sooner and you would save almost $400 in interest.

Card with 8% APR on balance transfers, but no intro APR

Let’s imagine a second scenario. In this case, you’re approved for a card with a $2000 credit limit. It doesn’t have a 0% introductory APR, but it has a regular APR of 8% on all purchases and balance transfers. In this scenario, the terms of the card say there is a fee for balance transfers. That fee is calculated as 5% of the balance, or $10, whichever is greater.

You transfer the entire $1,000 balance to this card. Since 5% of $1,000 is $50, and that’s more than $10, right away you will owe $1,050 on the new card. If you pay $30 each month with this 8% APR, it would take you over 3 years to pay off the balance, and you’d pay $134.70 in interest.

So, in this example, since the APR is lower you would end up paying off the original $1,000 debt about a year sooner, and you’d save over $300 in interest.

Hopefully these two examples illustrate how a balance transfer might be able to save you money. Both of these examples assume you’re not accumulating any additional credit card debt while you’re paying off your existing debt. Taking on more debt after a balance transfer can dig you into a deeper financial hole, and could have a negative impact on your credit, as discussed in the next section.

If you have any questions about these examples, please send us a message with the Ask button at the top of the page!

How will a balance transfer affect my credit?

One reason you may be hesitant to open a new card with a balance transfer offer is the fear that it might lower your credit scores. Depending on your credit history, that might be true in the short term, but it might be the smart move for your credit and your wallet in the long run.

If you’re considering a balance transfer card, but are hesitant because you’re not sure how a balance transfer might affect your credit, check out credit expert John Ulzheimer’s Q&A video below and read on.

What Happens When You Open a Balance Transfer Credit Card?

When you open a new credit card in order to transfer a balance from an older card, the actual balance transfer itself has no impact on your credit scores. It’s what happens before and after the balance transfer that impacts your credit. To take advantage of a zero percent interest balance transfer, you must first qualify for the offer and in order to qualify, you have to apply.

Not sure if you’ll qualify for a particular credit card? Learn how to see if you’re pre-qualified for any credit cards before you apply, without hurting your credit scores.

Inquiry for Credit

When you apply for a balance transfer card, the credit card issuer will pull your credit report and an inquiry will be added to your credit report.

Inquiries account for ten percent of FICO credit scores and assuming this is the only inquiry in the last 12 months, the inquiry will have a negligible impact if any on your score. This is because credit scores only count inquiries from the last 12 months. Unless you have around 4+ inquiries, they’re usually not a very big deal. Inquiries are a normal part of the process of applying for new credit, but if you apply for many credit cards in a short amount of time they can become a big problem.

New Account Opening AKA “Time in File”

Another factor that impacts your credit scores is the age of your credit card accounts.

If your application is approved, you’ll receive a new credit card and the card issuer will begin reporting the new account on your credit reports.

Your length of credit history accounts for fifteen percent of your total score. This category looks at the date each of your credit accounts were opened to determine the age of each account individually, and the average age of your accounts in aggregate. Generally speaking, you may see a slight drop in your credit scores when you open a new account, but as with the inquiry, the impact is typically minor.

Credit Card Balances and Revolving Utilization

When you open a new credit card account, the new credit limit (and any balance you have) will impact your credit scores because your revolving utilization will change.

Revolving utilization is how high your balances are in relation to your credit limits, and it contributes to the “amounts owed” category, which accounts for 30% of your FICO credit scores. The lower your revolving utilization, the higher your credit scores will be. This is why maxing out one or more credit cards can drop your credit scores quickly.

When you open a balance transfer credit card — or any credit card for that matter — the credit limit on the account will be factored into your total revolving utilization, most likely increasing your overall available credit.

And therein lies the silver lining: opening a balance transfer card may actually help to boost your credit scores. The key is keeping the old credit card open and after you transfer the balance to the new card, avoid taking on any additional “new” debt on the old card. Otherwise, you’re defeating the purpose of taking advantage of the introductory balance transfer offer.

How Do I Actually Do a Balance Transfer?

Once you’ve decided you want to do a balance transfer, the process is pretty easy.

1) Figure out where the balance is going

First, you’ll need to know where you’re transferring the balance. This could either be:

  1. a card you already have with a lower interest rate than the card with the balance you want to transfer
  2. a new credit card you just opened, possibly with a special offer favorable to balance transfers (if you’re looking for a card with a balance transfer offer, see our favorites here)

2) Determine credit available

Second, verify the credit limit and available credit on the card you’re planning to transfer the balance to. Make note of how much credit is available.

Also, look for any limits on balance transfer amounts. Some cards may limit how much you can transfer, and that may not be equal to the credit limit.

3) Understand the terms and fees

Third, read and understand all the terms of the card to which you’re transferring the balance. Here are some things to consider about the terms and fees:

  • If there’s a special 0% intro APR on balance transfers, make sure you understand the length and conditions of that special period. If you don’t have a plan to pay off the balance completely by the time the 0% introductory period is over, then maybe you should reconsider whether a balance transfer is a good idea for you.
  • If you’re applying for a new card, be sure the rate you apply for is the rate you get. Check the terms before you apply for the new card, and again when you get it. Depending on your credit history, the APR may not be the 0% you were expecting.
  • If you plan on using the card for purchases, check that the new APR applies to both the transferred balance and any new purchases. Some cards will only apply the 0% APR to the transferred debt and charge a much higher APR for new purchases.
  • Read the fine print of your balance transfer offer and you may find out that the card issuer will apply interest retroactively to the date the balance was first transferred if it is not paid in full by the end of the zero interest introductory period. This isn’t very likely on the popular balance transfer cards, but it will greatly increase the overall cost of the transfer if you don’t pay it off in time, so keep this possibility in mind.
  • Check the card terms for any balance transfer fees and take those into account.

Balance transfer offers vary, so read everything to be sure you understand everything that will happen if you make a balance transfer. In this example from the Chase Slate card, doing a balance transfer to this card at the intro APR will affect the interest rate for purchases and how interest is calculated on purchases:

waive other offers

4) Decide how much you want to transfer

Fourth, figure out how much you want to transfer. There are a few things you’ll need to consider while deciding how much you want to transfer:

  • How much credit is available on the card you’re transferring the balance to?
  • Is there a limit to how much money can be transferred?
  • How much will the fees be for the incoming balance transfer on the card you’re transferring the balance to?

It’s important that when you add up the amount you want to transfer plus the fees on that transfer the total is not higher than the amount of credit available on the card you’re transferring to.

5) Initiate the transfer

Finally, when you understand the terms and know the amount you want to transfer, you can initiate the transfer.

You initiate the transfer using the card you’re transferring the balance to.

Usually, you can do this on the website for the card you want to transfer the balance to. You don’t usually need to do anything with the card you’re transferring the balance from when you want to initiate the transfer.

If you can’t find out how to initiate a balance transfer on the issuer’s website, call the phone number on the back of your card for help. Once you start the transfer, you should see the balance on the card you’re transferring to increase and the balance on the card you transferred from decrease within about a week, but the timing can vary depending on the cards.

6) Pay off your credit card debt!

Now that you’ve made the balance transfer, make sure you pay off your credit card debt so you can eliminate or avoid interest. You may be tempted to close the card you transferred the balance away from, but it may actually be better for your credit scores to leave that card open and not use it.

If your card has a 0% introductory APR on balance transfers, aim to pay off that card completely before the 0% period ends so you can avoid that interest. You may also want to take this opportunity to think about your spending habits and avoid accumulating more credit card debt while you’re paying off the balance transfer credit card so you don’t end up in the same situation again.

One strategy for paying off a transferred balance during a 0% introductory period is to set up an automatic payment plan so that you pay off the card’s balance before the period ends. Use a payment calculator to determine how much you will need to pay each month to get to a $0 balance before the introductory period ends.

For example, on a zero percent offer that lasts 12 months, a $5,800 balance transfer (which becomes roughly $6,000 once balance transfer fees are applied) would need to be paid down by roughly $500 per month in order to pay off the full balance by the time the introductory rate expires.

If you are not sure you will be able to keep from adding to the card balance by making additional purchases on the new card you opened for a balance transfer, think carefully before getting the card and transferring your balance. Once the introductory rate ends, the new APR may be higher than the APR on the card you left behind.

An even better strategy is to transfer the balance over, and then put both cards away until you get the balance down to zero. Don’t even make them an option for new purchases.

Were you able to improve your financial situation using a balance transfer? Let us know!

Our Editor’s Picks for Best Balance Transfer Credit Cards

These are our current picks for the best balance transfer credit cards. You can learn more about these cards and why we chose them in our post: Best Balance Transfer Credit Cards.

Citi Simplicity<sup>®</sup> Card - No Late Fees Ever

Citi Simplicity® Card - No Late Fees Ever

Our rating
Credit rangeGood
Annual Fee$0*
Regular APR16.49% - 26.49%* (Variable)
Apply Now

securely on the issuer's website

BankAmericard® Secured Credit Card

BankAmericard® Secured Credit Card

Our rating
Credit rangeBad
Annual Fee$0
Regular APR25.24% Variable
Apply Now

securely on the issuer's website

Amex EveryDay® Credit Card

Amex EveryDay® Credit Card

Our rating
Credit rangeGood
Annual Fee$0
Regular APR14.99%–25.99% Variable
Apply Now

securely on the issuer's website

The information related to Amex EveryDay® Credit Card has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

BankAmericard® Credit Card for Students

BankAmericard® Credit Card for Students

Our rating
Credit rangeNo Credit
Annual Fee$0
Regular APR14.99%–24.99% Variable
Apply Now

securely on the issuer's website

Chase Slate®

Chase Slate®

Our rating
Credit rangeGood
Annual Fee$0
Regular APR17.24%–25.99% Variable
Apply Now

securely on the issuer's website

Discover it® Secured Credit Card

Discover it® Secured Credit Card

Our rating
Credit rangeBad
Annual Fee$0
Regular APR24.74% Variable
Apply Now

securely on the issuer's website

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The information related to Amex EveryDay® Credit Card has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.