Pros and cons of a balance transfer

When your monthly credit card payments are barely scratching the surface of your overall balance, it can make your debt feel overwhelming. Credit card interest is often one of the highest among consumer loan products, and keeping it at bay can prove quite the challenge. 

The good news is that you might not have to keep battling with a steep credit card bill and a balance that won’t budge. Instead, you could benefit from a balance transfer credit card if your credit is still in good shape.

But despite all the benefits of a balance transfer, it still may not be the right move for you. Here are the pros and cons of a balance transfer to help you decide.

Pros of balance transfers

If you are eligible, you can stand to gain a lot from a balance transfer. Here’s a rundown of the biggest advantages:

1. You’ll pay less interest

The most important reason to pursue a balance transfer credit card is to take advantage of a low or 0% introductory APR offer. By transferring your debt to this new card, you start saving on interest and paying off your principal balance immediately. Every payment you make goes directly toward reducing the amount you owe, which makes the balance transfer credit card a valuable tool for becoming debt-free.

2. You can consolidate debt payments

Depending on the credit limit you’re granted, your new credit card may allow you to transfer multiple credit card debt balances onto one card. In turn, this streamlines your finances by allowing you to consolidate multiple payments. If you’ve been struggling to manage several due dates and payment amounts, this is extremely helpful.

“If you are dealing with multiple credit card debts, transferring all balances onto one card simplifies your financial management. You’ll now deal with just one monthly payment, making it easier to track and less likely for you to miss due dates,” explains Sudhir Khatwani, founder of The Money Mongers.

3. Your credit score may improve

Your credit utilization ratio measures the amount of credit you are using versus the amount of credit that is available to you. It is typically expressed as a percentage and is calculated by dividing the total amount you owe in revolving credit accounts by the total credit limits of those accounts. For example, if you have $1,000 in available credit and have charged $300 to your account, then your credit utilization ratio would be 30%. 

When your credit utilization is high, which means you are using a large portion of your available credit, it can negatively impact your credit score. Experts recommend keeping this ratio below 30% to boost your credit score. Opening a balance transfer credit card will thus lower your credit utilization ratio because you’ll have more available credit and will be paying down your balance without adding interest to it.

4. You can capitalize on the perks of a new card

The balance transfer credit card you choose should offer more than a 0% intro balance transfer APR. Since you’ll be opening a whole new credit card, it’s ideal to choose one that will still be useful well after the intro period ends. Look for solid overall benefits, such as a rewards-earning system, discounts, perks and more.

Cons of balance transfers

On the other hand, balance transfer credit cards have their downsides. If you find that the disadvantages outweigh the pros, then you may want to consider balance transfer alternatives. Here are several caveats to watch out for:

1. You may not qualify for a worthy card

To be eligible for the best balance transfer credit card offers, you usually need to have good or excellent credit. While there are options for balance transfer cards if you have bad credit, they are typically lacking compared to the best cards out there. If your score is in a lower range, you may not qualify for a card with a 0% intro APR offer, and if you do, it might not have the best terms.

2. A balance transfer fee will likely apply

Depending on the terms of the card you’re considering and its current promotion, you may have to pay a balance transfer fee. This fee is usually 3% to 5% of the total transfer amount and may be subject to minimum fees. For example, if you transfer a $1,000 balance to a balance transfer card with a 5% transfer fee, the total amount you will need to pay down is $1,050.

Negotiating or avoiding balance transfer fees can be challenging, but there are credit cards available that don’t charge balance transfer fees. In addition to a handful of balance transfer cards offered by major issuers, some credit unions also offer cards with no balance transfer fees.

3. You could make the problem worse

The truth is, with a balance transfer card, you’re simply moving money around without necessarily improving your debt problem. In fact, if you don’t practice good financial spending and repayment habits, you could make the problem worse. If you don’t continue to make on-time payments, you’ll risk losing the introductory period entirely. Plus, having a new card may entice you to charge even more, especially if your new balance transfer card also offers a 0% intro APR on purchases.

Take control of your spending by creating a realistic budget that tracks your income and expenses responsibly. Avoid impulse purchases and try to pay more than the minimum amount due on your credit cards each month.

4. The introductory APR offer won’t last forever

It is important to remember that 0% intro APR offers typically expire 12 to 21 months after opening the card. That provides a limited window of time in which to benefit, but it can also provide a false sense of security.

Once the introductory offer ends, the remaining balance could be subject to a higher interest rate than you had before. To ensure you pay off the balance before the intro period ends, make a plan using Bankrate’s credit card balance transfer calculator to determine the monthly payment amount that will help you reach your goal.

The bottom line

While a 0% APR offer can help you make great strides toward paying off credit card debt, it can also come with some downsides, like temporarily lowering your credit score. 

Before pursuing a balance transfer credit card, carefully assess your financial situation — including your ability to repay and qualify for the new card. Check out Bankrate’s Cardmatch™ tool to match with balance transfer cards from trusted partners that fit your credit profile and financial goals.