A balance transfer lets you move debt from one credit card to another, typically for a fee. Balance transfer fees usually range between 3% to 5% of the amount of your balance transfer, or between $5 to $10, whichever is higher. Some credit cards offer introductory 0% annual percentage rates (APR) on balance transfers for periods of six months or more, which can help cardholders save money on interest payments.
You’ll save money in interest payments, but transfers typically aren’t free. To calculate your fee, simply multiply the total balance transfer amount by the balance transfer fee, like this:
$1,000 x 3% = $30
When to Consider a Balance Transfer
- Paying down high-interest credit cards: A balance transfer is a good option if you want to pay down high-interest debts. It’s essential to calculate how much you’ll save on interest compared to the total cost of the balance transfer, including the APR and fee.
- Taking advantage of 0% APR: It’s best to use a credit card that offers a 0% introductory balance transfer APR to transfer your high-interest debts. This offer usually lasts for a limited period, so take advantage of the promo as soon as you’re approved. Business owners can also use small business credit cards that offer 0% APR.
- Consolidating debt: If you have outstanding balances on two or more credit cards, consider consolidating your debts through a balance transfer. It allows you to manage and pay down only one credit card instead of multiple cards, making it easier to keep track of your payments.
How a Balance Transfer Works
A balance transfer allows you to transfer your credit card balance from one card to another that may offer more favorable terms. Balance transfer fees and APRs vary from one issuer to another. These are the common steps to take when you want to do a balance transfer. The process and requirements may differ depending on your credit card issuer.
1. Check Your Balance and Interest Rate
The first step is to check how much your total outstanding credit card balance is and its corresponding interest rate. This information will help you understand if a balance transfer is the right move for you. For example, it’s typically best to look for a card that can support the amount you want to transfer and that has a lower interest rate.
2. Find a Balance Transfer Credit Card
After you decide how much to transfer, the next step is to find an appropriate credit card that will accept the amount you want to transfer. Find the right balance transfer credit card that offers the best terms and lowest costs. You’ll need to consider the length of the introductory-APR period, the regular APR, the balance transfer fee, and if the new card will accept your full transfer amount.
3. Apply for Your New Credit Card
Once you decide on the right balance transfer credit card, begin to process your application. Most credit card issuers accept online applications. It’s best to try to get a preapproval first to prevent unnecessary hard inquiries on your credit report. A credit card that offers a 0% introductory balance transfer APR for a long promotional period, like 12 months or more, is the best option.
4. Request a Balance Transfer
Once you get approved for a balance transfer credit card, you may request a balance transfer over the phone or online. Make sure to prepare important information such as the account numbers of your old credit cards and how much you want to transfer.
5. Allow the Balance Transfer to Go Through
It may take several days to a few weeks for an issuer to complete a balance transfer, so it’s best to continue checking your other credit cards and pay the necessary minimum payments until the balance transfer goes through. When the balance transfer is complete, the issuer will charge the credit card balance transfer fee, and you’ll be expected to repay your new balance.
6. Pay Down Your Balance Transfer Debt
After your balance transfer request is approved and completed, the balance will then appear on your new credit card’s billing statement. This means you should start making payments on the balance transfer card to pay down your balance transfer debt. If you are not able to transfer the full balance from your other cards, you still have to make payments to your old cards to pay off your balance.
Saving Money With a Balance Transfer
A balance transfer can help you save money, especially if you’re trying to pay down high-interest credit card debts. It’s important to choose a balance transfer credit card that enables you to minimize your costs, whether that’s through a 0% introductory APR period or no balance transfer fees.
Here are three ways you can save money with a balance transfer:
- 0% APR balance transfer credit card: A 0% balance transfer APR means the credit card issuer will not charge interest on your balance transfer transaction for a limited period of time. Some 0% APR offers only apply to purchases, so be sure to confirm your card offers 0% APR on balance transfers.
- $0 introductory balance transfer fee: Some credit cards offer a $0 introductory balance transfer fee for a certain period after you open your account. This allows you to transfer your balance from other cards without having to pay the balance transfer fee.
- No annual fee credit cards: This type of credit card lets you use the card for free, allowing you to save money on annual fees and cut the overall cost of opening a new credit card.
It’s important to consider the current APRs of your existing credit cards and compare them to the balance transfer APR and fees of your new card to ensure that the transfer transaction will help you save money.
Benefits of a Balance Transfer
- Can save you money: You can save money if you move your balance from one credit card to another credit card that offers a better interest rate. The best balance transfer credit cards offer 0% APR, $0 balance transfer fees, or charge no annual fees.
- Consolidate debts: Balance transfers let you consolidate your credit card debts onto one card. This means you will only have to manage and pay off one debt at a time.
- Take advantage of a credit card’s better terms: Balance transfers allow you to take advantage of a credit card that offers better terms. Choose a credit card that offers a better rewards system and lower APRs and fees.
Drawbacks of a Balance Transfer
- It could hurt your credit: When you apply for a new credit card, the issuer may do a hard credit check, which could damage your credit score between one to five points. Also, if you move a balance to your new credit card with a low credit limit, this may adversely impact your credit score because it will increase your credit utilization ratio.
- You may end up with higher costs: If you don’t know how to calculate your costs properly, you may end up paying more when you transfer your balance from one card to another. It’s important to consider all costs, including the balance transfer fee, APR, and annual fees.
- You could incur more debts: If you don’t know how to control your spending, you could incur more debts, especially if you keep on using your newly paid-off credit card. You should discipline yourself and avoid making new purchases using your old credit card to avoid the risk of getting into more debt.
If you’re looking to pay down your high-interest credit cards or consolidate your debt, consider moving your balances to one card that offers more favorable terms. It’s important to consider all costs, including credit card balance transfer fees and APRs, to save money and ensure that you will not end up paying more.