Balance Transfers

Brendan Harkness

Brendan Harkness

Updated Oct 04, 2016

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 you can transfer credit card debt from one credit card to another. Transferring that debt to a card with a lower interest rate would help you reduce the amount of interest you’re charged with as you pay it off. Some balance transfer credit cards even have an introductory 0% APR for a limited time, so you can temporarily avoid interest while you pay off your credit card debt.

Remember, you can avoid credit card interest in the first place by always 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 still end up paying lots of extra money on top of your debt in the form of interest.

Keep reading to learn more about:

  • how balance transfers work
  • how balance transfers impact your credit
  • how to decide whether a balance transfer is a good idea
  • how to actually do a balance transfer

Understanding Balance Transfer Offers

While people might say “balance transfer credit card,” a more accurate phrase to use may be “credit card with an 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.

That fee is generally added to the transferred balance amount. Some balance transfer offers will 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 will have an introductory period with a lower APR for balance transfers. 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.

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

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

If something prevents you from paying off the transferred balance before the interest rate increases, start looking for another balance transfer opportunity. Although another transfer can help you avoid a steep increase in the APR, continually transferring balances from one card to another can impact your credit rating. It is always better to pay off the balance after only one balance transfer.

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, making balance transfers a smart option for consumers with good credit scores. If you’re not seen as risky by creditors, there may be some good balance transfer offers available to you.

Anyone who has gone through a period of unemployment or underemployment but now has a better paying job and can pay off the debt will also benefit from balance transfer offers.

However, consumers 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 be better off considering other options such as 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. It can be risky for your financial future to get a balance transfer offer to defer interest and hope your situation will improve without a solid plan to pay off your debt.

Example: Two simple balance transfer scenarios

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

Let’s say you have a $1,000 balance 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!

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 people are 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, but the trade off could still be in your favor.

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 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 score. It’s what happens before and after the balance transfer that impacts your credit. To take advantage of a zero percent interest balance transfer teaser, you must first qualify for the offer and in order to qualify, you have to apply.

Insider Tip: 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 score.

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 reported in your credit report.

Inquiries account for ten percent of your credit score 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, and isolated inquiries for credit are minor.

New Account Opening AKA “Time in File”

Another factor that impacts your credit score are new account openings. If your application is approved, you’ll receive a new credit card and the card issuer will report the new account opening in your credit report.

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 score 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 account, that new credit limit (and any balance you have) will impact your credit score.

This is because how much you owe accounts for 30% of your credit score, with more emphasis on credit card debt and your available credit – or revolving utilization. Revolving utilization is the percentage of your balances in relation to your credit limits – on all of your credit cards added up. The lower your revolving utilization, the higher your credit score will be.

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 score. 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 or 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 new 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.

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 or see our listing of issuer phone numbers. Once you start the transfer, within a few weeks you should see the balance on the card you’re transferring to increase and the balance on the card you transferred from decrease.

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.

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 it 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

The cards on this page have been chosen from the widest possible selection of cards that we could find when the page was last updated on July 13, 2016. Although Credit Card Insider does receive compensation from some card issuers as advertisers, this does not in any way influence our choice of cards or the order that cards appear on the page. We have attempted to determine the best cards in this category, regardless of our advertising relationship with the issuers.

Learn more about how we rate credit and charge 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 – 2016.

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