Balance transfer credit cards

Using a Balance Transfer to Consolidate Debt
Erik MartinApr 27, 2022
Key Takeaways:
  • A balance transfer credit card replaces your current credit card debt with a new card.
  • The most significant benefit is a low-interest rate, as low as 0% APR, that allows you to save on interest.
  • Balance transfer credit cards work best if you can pay down the debt during the introductory period.

Carrying a costly balance on a high-interest credit card? Consider a balance transfer to a different credit card with a lower interest rate. This can save you a lot of money if done right.

But this raises several questions: What is a balance transfer? What are the best balance transfer cards? Who are good prospects for doing a balance transfer? Learn the advantages and disadvantages of this strategy and how to transfer a credit card balance.

What is a credit card balance transfer?

Put simply, a balance transfer involves paying off an existing credit card with a new credit card. When you transfer a balance owed, you are moving debt from a card with a higher interest rate onto a different card with a lower interest rate to save money on interest and fees involved.

This strategy can make sense if you apply and get approved for a new credit card that offers a special low interest rate. Some credit card issuers charge zero interest for a limited time as a special promotion, for example.

“It’s important to understand that doing a balance transfer doesn’t change the total amount that you owe. In fact, it may even increase your balance due if there are fees associated with performing the transfer,” says Carter Seuthe, CEO of Credit Summit.

Gates Little, CEO of altLine, an arm of the Southern Bank Company, notes that you will likely have to transfer the balance to a new card through a different financial institution than your current credit card issuer.

“A balance transfer can be a great way to reduce the total interest you are paying overall on your credit card debt – provided you can consistently pay toward the balance on your new card,” says Little.

The pros of doing a balance transfer

Transferring a balance from one credit card to another has its pluses.

“For starters, the savings on interest charges you may get from moving away from your existing credit card debt can be ideal,” explains Nathan Grant, a credit industry analyst in Syracuse, New York. “You can also use the money saved on interest to help pay off your new debt sooner. And your credit score can improve because a newly opened credit card account will increase your overall available credit and lower your credit utilization ratio.”

What’s more, some credit cards allow you to consolidate your debt by combining credit card balances from multiple credit cards and transferring them onto the new card. This can make it more convenient to pay off your combined debt and concentrate on a single payment with one payment deadline.

Additionally, your new credit card may offer other rewards or perks, such as cashback on purchases or generous airline miles, which may represent a better deal than your current credit card.

Say your existing credit card charges an annual fee. Suppose you select a new lower-interest credit card with no annual fee attached. That can yield even further savings (assuming you transfer the balance and later eliminate the older credit card before the yearly fee renews).

The cons of transferring a balance

However, balance transfers have their shortcomings. According to Grant, the downsides can include:

  • You may be charged a balance transfer fee. “Most credit card issuers charge between 2% and 5% of the balance as a balance transfer fee,” he says.
  • Your credit card issuer could put a hard/limit on the amount you are allowed to transfer over.
  • You’ll typically get a hard inquiry on your credit reports; opening a new credit card can also lower your average age of accounts. Both of these scenarios can lower your credit score.
  • You may not qualify for a new credit card with favorable balance transfer terms if you have poor credit.

Furthermore, don’t forget that zero- to low-interest-rate promotional offers on new credit cards eventually end. So you may have a limited window of time to transfer your balance and pay off that balance in full before interest rates spike on the new card.

“Be sure to check the interest rate once the promotion period is over. If your interest rate is higher than your current rate, you want to be certain you can pay off that card during the promotional period,” suggests Little. “Otherwise, you could rack up serious debt on your card with higher interest rates than you had before doing the balance transfer.”

Good candidates for a credit card balance transfer

Balance transfers don’t make sense for every consumer. But this could be a worthwhile endeavor if you fit the right profile.

“Good candidates for a credit card balance transfer include those with multiple credit cards that have high balances or individuals with one credit card with a high balance and exorbitant fees that you wish to get out from immediately,” says Jake Hill, CEO of DebtHammer Debt Consolidation. “A credit card balance transfer can be a great idea if you struggle to pay your balance off in full and are falling victim to extremely high interest rates.”

If you’ve maxed out on your current credit card, transferring a balance to a new card with a higher spending limit may be wise. That’s assuming you will be a responsible borrower who will not max out on your new card while also paying off your total debt as soon as you can.

However, transferring a balance may not be worth it if you aren’t eligible for a new credit card with favorable terms.

“If your credit rating is good to excellent, you have a greater chance of qualifying for a new card with an attractive balance transfer offer,” adds Grant.

Seuthe says the very best prospects for transferring a balance are those who have access to a 0% interest credit card on a short-term basis.

There are two other scenarios in which a balance transfer may prove beneficial.

“If you have a better-paying job after a period of unemployment and you are ready to lower your debt, a balance transfer could be a smart move. And if you’re committed to stopping overspending and are ready to create a plan to pay off your debt, a balance transfer can be a helpful tool that pairs well with other debt repayment strategies,” recommends Grant.

The best balance transfer credit cards

Wondering what the best balance transfer cards are? The pros agree that credit cards with low to no interest rates (0% APR for at least a limited time), high spending limits, and no annual fees are your best bet.

“The right balance transfer credit card will depend on the terms and fees you are looking for and what your credit score currently looks like,” Grant continues. “Look for a balance transfer card with the most favorable terms and the longest 0% APR period to take the fullest advantage of this strategy. Keep in mind, too, that most banks won’t let you transfer a balance from one card to another from the same issuer because it’s not beneficial to them.”

How to transfer a credit card balance

The process of transferring a balance can involve several steps before, during, and after the transfer.

First, shop around for a new credit card that preferably offers a 0% APR and allows for balance transfers. If you already own multiple credit cards, one of your cards may offer these perks. Otherwise, hunt for a new credit card.

Before committing to a new credit card, verify its credit limit and available credit, and look closely for any balance transfer limits or fees involved.

“Read and understand all the terms and conditions of the card you are transferring the balance to,” advises Grant. “Next, determine how much debt you want to transfer.”

You can initiate the actual balance transfer usually by visiting the website of the credit card where you will move the debt to or by phoning the number on the back of your credit card and asking for help with the balance transfer.

“Depending on the credit card issuers involved, your transfer could take a few days to a few weeks. You can check the status of a pending balance transfer online,” Grant adds.

After the transfer completes, work hard to pay off your debt and take full advantage of the transfer.

Alternatives to a balance transfer

If you can secure a new credit card with a 0% APR that won’t charge fees and allows for balance transfers, this may be your best method for paying less interest and getting out from under your credit card debt.

But if you expect to carry a debt balance long-term, it may be better to consider other financing options.

“Personal loans and debt consolidation loans offer clearer paths to reducing your debt load. That’s because they will always have much lower interest rates than credit cards if you carry a balance past a zero- or low-interest rate introductory period,” says Seuthe.

Frequently Asked Questions

What is a balance transfer?

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A balance transfer involves paying off a current credit card with a new credit card, preferably one that charges no interest or low interest for a limited time. When you transfer a balance owed, you simply shift debt from one card to another. You will still owe the entire balance due, plus any fees that the new credit card may apply.

What is a grace period?

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According to Jake Hill of DebtHammer, a grace period is a span that occurs between your credit card’s final billing cycle and your credit card bill’s due date. During the grace period, no interest rate is charged on purchases you make during this period.

What are the best balance transfer cards?

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The best balance transfer credit cards offer low to no interest rates (0% APR for at least a limited time), high spending limits, and no fees, including annual fees.