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A balance transfer allows you to move your existing debt from one credit card to another, often with a lower interest rate or even a 0% Annual Percentage Rate (APR) promotional offer. So, how do balance transfers work? Once you request a transfer, your new credit card provider pays off the balance on your old card, effectively shifting the debt to your new card. You then repay the balance under the new card’s terms, typically taking advantage of lower interest rates or a promotional APR. Transfers usually take a few days to complete and to maximize savings, it’s essential to pay off the debt within the promotional period.
Key Takeaways:
- To understand how balance transfers work, you apply for a card, request the transfer with account details, and the issuer consolidates the debt.
- Balance transfers are ideal for individuals with high-interest debt, good to excellent credit, and a clear plan to pay off their balance during the promotional period.
- Consider balance transfers when consolidating debt or lowering interest will save money.
- Look for a 0% APR card with low fees and a credit limit that covers your debt.
Who the Balance Transfer Is Best For
A balance transfer can be an excellent strategy for the following individuals:
- Those with high-interest debt: If you’re paying high-interest rates on your credit cards, transferring to a card with a 0% APR can save you money and help you pay off debt faster.
- People seeking debt consolidation: Managing multiple payments can be overwhelming. A balance transfer consolidates your debts into one manageable monthly payment.
- Disciplined budgeters: Balance transfers work best for people who can stick to a repayment plan and avoid adding new debt to their old or new cards.
- Good to excellent credit holders: Many balance transfer cards require a strong credit score to qualify for the best offers.
- People seeking simplicity: If you have multiple debts, consolidating them into one balance transfer card makes managing payments easier.
- Short-term debtors: If you can pay off your balance within the promotional period, a balance transfer can be a cost-effective way to manage debt.
If any of these scenarios sound like you, a balance transfer could be the right move to help you save money and take control of your financial future.
When Is the Right Time for a Balance Transfer
Timing is everything when it comes to a balance transfer. Consider this option when:
- Interest is draining your finances: If high-interest payments are preventing you from making progress on your principal debt, a balance transfer can provide relief.
- You have a solid repayment plan: If you’re ready to commit to a strategy for paying off your balance within the promo period, now might be the time.
- You qualify for a strong offer: Apply for a balance transfer when you find a card with favorable terms, such as 0% APR for 18 months and low transfer fees.
- You’re facing financial pressure: A balance transfer offers short-term relief by pausing interest accrual, giving you time to regain control of your finances.
Pros and Cons of Balance Transfers
Factors | Pros | Cons | Sample Use Case |
|---|---|---|---|
Interest Savings | You have a $5,000 credit card balance with a 20% APR. Transferring to a card with a 0% APR for 18 months could save over $1,400 in interest (assuming $278/month payments). | ||
Debt Consolidation | You have three credit cards with balances of $3,000, $2,000, and $1,000. Consolidating to one card with 0% APR simplifies your payments and reduces total interest. | ||
Cost of Fees | |||
Credit Impact | You transfer a $7,000 balance to a new card with a $12,000 limit and keep old cards open. Your utilization ratio decreases, which could improve your credit score over time. | ||
Financial Flexibility | You have an unexpected $3,000 medical expense. A balance transfer gives you a 12-month window to pay it off interest-free, easing financial pressure. | ||
Eligibility | You have a 750 credit score and qualify for a card offering 0% APR for 21 months with a $0 balance transfer fee—ideal for paying off a $10,000 debt without added costs. |
How to Get a Balance Transfer: Step-by-Step
Understanding how a balance transfer works can help you make the most of this debt management tool. Here’s a clear breakdown:
1. Choose and Apply for a Balance Transfer Credit Card
Find a credit card offering a low or 0% introductory APR on balance transfers. Carefully review the terms, including the promotional period length and any transfer fees. If you don’t already have a suitable card, apply for one that matches your needs. Approval typically depends on your credit score, so having good to excellent credit improves your chances. For options, explore our list of the best business credit cards for balance transfers to find the right fit for your needs.
2. Request the Balance Transfer
Once your card is approved, initiate the balance transfer by providing details about the account(s) you’re transferring debt from, including the account number and the transfer amount. This can usually be done online, by phone, or in person. Common methods include:
- Credit card to credit card: Transfer balances directly by providing the necessary account details to your new card issuer, who will handle the process.
- Balance transfer checks: Some issuers offer checks you can use to pay off your existing balance, which is then added to your new card as a transferred amount.
- Direct deposit: Certain issuers allow you to transfer funds directly to your bank account, enabling you to pay off the old debt yourself.
3. Wait for the Transfer to Complete
The transfer process typically takes five to seven business days, but it can take up to three weeks, depending on the card issuer. During this time, it’s important to continue making payments on your old account until the transfer is confirmed.
4. Start Repaying the Balance
Once the transfer is complete, the debt is added to your new credit card. You can now start repaying it under the new terms, ideally before the promotional period ends to avoid accruing interest.
Balance Transfer Savings Calculator
To see how much you could save with a balance transfer, try our easy-to-use balance transfer calculator. Just enter your current debt amount, the interest rate you’re paying, and the details of the balance transfer card you’re considering. In seconds, you’ll get an estimate of your potential savings and a clearer picture of how this strategy can work for you.
How to Choose the Right Balance Transfer Card
Selecting the right balance transfer card is essential to make the most of your debt repayment strategy. Here are the key factors to consider:
- Introductory APR offer: Look for a card with a 0% APR promotional period on balance transfers. The longer the promo period, the more time you have to pay off your debt without accruing interest. Moreover, check the standard APR that applies once the promotional period ends. If you can’t pay off the entire balance during the promo, a lower ongoing APR can save you money. For more options, explore our roundup list of the best 0% APR business credit cards to find the right fit for your needs.
- Balance transfer fees: Most cards charge a balance transfer fee, typically 3% to 5% of the transferred amount. Compare cards to find one with lower fees or $0 fees to maximize savings.
- Credit limit: Ensure the card offers a credit limit sufficient to cover the debt you want to transfer. Some cards may limit the amount eligible for a balance transfer.
- Credit requirements: Balance transfer cards often require good to excellent credit scores. Review your credit score before applying to increase your chances of approval.
- Additional perks and benefits: Some balance transfer cards include rewards programs, cash back, or other benefits. While these shouldn’t be the main deciding factor, they can add extra value if you plan to use the card beyond the balance transfer.
To help you find the perfect card for your balance transfer needs, check out our list of the best business credit cards for balance transfers.
Frequently Asked Questions (FAQs)
A balance transfer can temporarily lower your credit score due to the hard inquiry made when applying for a new card. Additionally, transferring a large balance may increase your credit utilization ratio, which could impact your score. However, paying down your debt and responsibly managing the new card can improve your score over time.
The “catch” often lies in the fees and promotional terms. Balance transfer cards typically charge a fee of 3% to 5% of the transferred amount, and the 0% APR is temporary, lasting around 12 to 18 months. If you don’t pay off the balance within that period, high interest rates will apply to the remaining debt.
You typically can’t transfer balances between cards from the same issuer. Make sure the new card is from a different provider than your current one.
Bottom Line
A balance transfer can be a powerful tool to save on interest and take control of your debt, but it’s not a one-size-fits-all solution. By understanding how balance transfers work, evaluating the pros and cons, and choosing the right card, you can use this strategy to your financial advantage. Remember, success depends on having a solid repayment plan and disciplined spending habits. With careful planning, a balance transfer can be a stepping stone toward achieving financial freedom.