Key takeaways

  • A balance transfer credit card can help you repay debt quickly at a low or 0 percent intro APR, allowing you to decrease interest expenses over a restricted period
  • Balance transfer credit cards offer several advantages, including the ability to consolidate your payments, lower your total interest paid and benefit from a more generous and rewarding credit card
  • The downsides of a credit card balance transfer may include a costly fee, a limited window of time in which to capitalize on the low or 0 percent intro APR offer and difficulty qualifying if you lack good credit

Are you facing a steep credit card bill that you need to pay off over several months or longer? Depending on your creditworthiness, you may benefit from opening a balance transfer credit card that offers a 0 percent intro APR. Transferring your balance to this card could save plenty in overall interest, but it’s important to weigh the pros and cons of balance transfers before making a decision.

This article explores the benefits of a balance transfer credit card versus the drawbacks. We’ll also explain how balance transfer cards can affect your credit score, help you avoid some common pitfalls and suggest alternatives.

How a credit card balance transfer works

A balance transfer credit card lets you move your existing credit card debt from a high-interest card to a new card, ideally with a 0 percent introductory APR offer. This intro APR offer usually lasts for around 12 to 21 months, and your main goal should be to pay off all of your debt within this time frame.

When dealing with overwhelming debt, a balance transfer credit card can be a helpful solution. By transferring your debt to this new card, you start saving on interest 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.

To start the process, you’ll apply for a balance transfer credit card and specify the amount you want to transfer from your high-interest card. If approved, the new card provider will handle the transfer and pay off the debt on your old card. You’ll still owe the balance to the new card issuer, however, you’ll enjoy an introductory 0 percent APR period — helping you to tackle your debt quickly by avoiding interest payments during that time.

Pros of balance transfers

There are multiple benefits of balance transfer credit cards, assuming you are eligible. Here’s a rundown of the biggest advantages.

  • The most important reason consumers pursue a balance transfer credit card is to take advantage of a low or 0 percent introductory APR offer. This allows them to move high-interest debt to the new card, pay less interest overall and repay their debt more quickly.

    “Credit card interest is very high at present, with rates from 18 percent to as high as 27 percent,” explains Cyndie Martini, CEO and founder of Member Access Processing (MAP), the nation’s largest aggregator of Visa card services for credit unions. “Banks are allowed to charge high interest because credit card charges are unsecured loans. A balance transfer allows consumers to temporarily have a lower or no interest charge while they pay down debt.”
  • 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 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,” Sudhir Khatwani, founder of The Money Mongers, says.
  • The balance transfer credit card you choose may provide more than a 0 percent intro APR. It may also offer better overall benefits — possibly including cash back, rewards, discounts and more.

    “New generations of cardholders are used to churning — moving from one service to another, like streaming, cable and cell phone providers. They may also feel they are not getting the full benefits or services from an existing issuer. Changing cards and transferring balances can often yield better rewards — for example, an airline card that rewards airfare miles,” Martini adds.
  • Dennis Shirshikov, head of growth for Awning.com and a finance professor at the City University of New York, notes that, “a side benefit of transferring a balance to the right card is improving your credit score by reducing your credit utilization ratio.”

    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.

    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. Opening a balance transfer credit card and paying off your balances will lower your credit utilization ratio.

Cons of balance transfers

On the other hand, balance transfer credit cards have their downsides. Here are several associated caveats to watch out for.

  • 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 percent intro APR offer.
  • 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 usually equates to 3 percent to 5 percent of the total transfer amount and may be subject to minimum fees.

    “Know that a credit transfer is not free money to extend paying off your open balance. It’s only a discounted opportunity to save money and pay off a balance,” cautions Martini.

    Negotiating or avoiding balance transfer fees can be challenging, but there are credit cards available that do not impose these fees. In addition to several balance transfer cards offered by the major issuers, some credit unions also offer cards with no balance transfer fees.
  • The truth is, with a balance transfer card, you’re simply moving money around without improving your debt problem. In fact, if you don’t practice good financial spending and repayment habits, you could make the problem worse. Having a new card may entice you to charge even more, especially if you won’t be charged interest for the first few months.

    “Without discipline and a plan, a balance transfer can tempt you to accrue more debt, exacerbating your financial situation,” cautions Andrew Latham, a certified financial planner.
  • It is important to remember that 0 percent 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 that you won’t be charged interest indefinitely.

    “It’s important to read the fine print, as it varies per promotion. Before initiating any balance transfer, understand how long the new issuer is offering you the 0 percent or low interest rate,” continues Martini. “For the transfer to work in your favor, you must pay off the balance before the end of the introductory rate or you will pay interest for the whole amount offered.”
  • Each time you sign up for a new credit card, your credit score may drop by up to 10 points — possibly for several months. That’s because applying for a new card triggers a hard inquiry which can temporarily lower your credit score.
  • If you’re planning to apply for a mortgage loan, auto loan, home equity loan or personal loan in the near future, be cautious about getting a balance transfer credit card now. As mentioned above, applying for such a card might temporarily decrease your credit score by adding a hard inquiry to your credit profile. This could make it harder to get approved for the loan you want or secure a low interest rate.

Alternatives to a balance transfer

If you want to avoid the drawbacks of balance transfer credit cards, or if you don’t qualify for this kind of card, consider alternative strategies:

  • 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.
  • Stick with your current credit card but make larger or extra payments regularly to reduce your debt faster.
  • Create a payment plan with your credit card company, either by automating payments or making smaller, more frequent payments that are easier to manage.
  • Look into a loan. Check out a home equity loan, home equity line of credit or personal loan, and use the proceeds to consolidate and pay off your higher-interest credit card debt. “Personal loans are available, often easy to get and usually have a much lower interest rate than any credit card,” suggests Martini.
  • Reach out to your creditors to inquire about temporary hardship plans. These plans may waive fees and lower interest rates for a few months, allowing more of your payment to go towards reducing the principal amount.
  • Explore nonprofit credit counseling for long-term debt solutions. Certified counselors can analyze your finances and offer effective strategies for getting out of debt.
  • Consider a debt management plan offered by credit counseling agencies. These plans provide benefits like lower interest rates and a single monthly payment, helping you pay off your debt faster without requiring a minimum credit score.

The bottom line

Before pursuing a balance transfer credit card or transferring a balance, carefully assess your financial situation — including your ability to repay and qualify for the new card.

“A good candidate for a balance transfer card is someone with a good to excellent credit score who is eligible for cards with the best terms and rates,” Latham says. “They are also disciplined and committed to paying off their balance within the promotional period, and they view the balance transfer as a tool to manage debt — not an excuse to incur more.”