Tired of paying high interest rates on your credit card debt? Moving that debt to a credit card that offers an introductory 0 percent interest rate on balance transfers can help, as long as you pay that debt off before the intro period ends.
But credit card debt isn’t the only debt that you can transfer to other credit cards. Many card issuers allow you to transfer auto, personal, home equity and student loan debt, too.
But should you? Does it make sense to transfer that personal loan to a credit card that offers 0 percent interest for 18 months?
Not surprisingly, the answer is complicated. You could save thousands of dollars in interest by transferring your debt. But what if you can’t pay off that debt before those introductory offers end? You could be facing even higher interest payments.
Because of this, financial pros caution consumers against transferring large chunks of debt to credit cards if they don’t first craft a plan for how they’ll pay them off.
How does a balance transfer work?
Balance transfers are one way to eliminate or reduce the interest you pay on debt.
Many card issuers offer new cardholders the chance to transfer existing debt to a new card at 0 percent interest for a limited time. After this introductory offer ends—usually 12 to 18 months depending on the card—that 0 percent interest rate will adjust to the card’s normal APR, which could range from 16 percent to 20 percent or higher, depending on the strength of consumers’ credit.
Here’s an example: You transfer $4,000 from a credit card with 19 percent interest to a new card offering 0 percent interest on transferred debt for 12 months. This gives you 12 months to pay off this debt without having to pay interest on it. After the introductory period ends, the interest rate on the card adjusts to its normal purchase rate.
Balance transfers usually aren’t free, with card issuers charging fees to complete them. These fees vary but are often 3 percent of the amount you’re transferring. If you are transferring $10,000 from a personal loan, you could pay a fee of $300.
There are limits, too. Credit cards only allow you to transfer so much debt to a new card. If you owe $7,000 on your car loan and your card’s credit limit is $5,000, you won’t be able to transfer all your loan debt. You can transfer some of it, but you’d then have to manage two payments. And if you don’t pay off the amount you transfer during that 18-month intro offer, you might end up with higher combined payments.
You also can’t transfer loan debt to a credit card provided by the same lender. If you have an auto loan from Chase, you can’t transfer that debt to a credit card issued by Chase.
Debts you can transfer to a credit card
What debts can you transfer to a credit card?
Credit card debt
Consumers most commonly transfer credit card debt. The goal is to take debt from a credit card with a high interest rate and transfer it to a card with a 0 percent interest rate offer. This way, consumers can save hundreds of dollars in interest payments as they pay down their debts.
Most card issuers allow you to transfer auto loan debt, too. As an extra benefit, when you transfer auto loan debt to a balance transfer credit card, you’ll officially be paying off the lender servicing that loan. This means you’ll get the title of your car earlier than you otherwise would have.
Just make sure you can pay off the money you transfer to your credit card before that 0 percent offer ends. Auto loans generally come with lower interest rates, often in the 3 percent range. You don’t want to swap that low of an interest rate with a rate as high as 20 percent when your new credit card’s regular APR kicks in.
The interest rates on personal loans can be high because they aren’t backed up by any collateral. This makes them riskier for lenders.
Consider an auto loan: If you don’t pay your loan, your lender can repossess your car, the collateral for that loan. With a personal loan, there’s little lenders can do if you stop paying, which is why these loans come with higher interest rates. Moving this debt to a credit card with a 0 percent interest offer could save you money. Again, this hinges on you paying off that transferred debt before the introductory offer ends.
You can transfer student loan debt to credit cards. Be careful, though: Federal student loans come with protections such as repayment plans and forgiveness programs. If you transfer that debt to a credit card, you’ll lose these protections.
Home equity loans
If you’ve taken out home equity loans to cover the costs of a kitchen remodel, bathroom addition or other home-improvement project, you can also transfer this debt to a credit card. This might not always be feasible, though.
Because renovations are so expensive, home equity loans tend to be large. It’d be rare to find a credit card with a large enough credit limit to allow you to transfer your entire home equity loan to a credit card. However, if you’ve paid down enough of your loan, this might still be doable.
You can sometimes transfer your mortgage loan debt to a credit card. Again, though, this usually isn’t feasible because mortgage loans are so large. However, if you have paid down your loan to just a few thousand dollars, you could transfer the last bit of your debt if you want to pay it off without interest.
When you should consider a balance transfer credit card
A balance transfer makes sense if you are certain you’ll pay it off before your card’s 0 percent interest offer expires. If you do this, you can generate plenty of savings, said Colton Castleman, retirement counselor at Assurance & Guarantee in Burlington, North Carolina.
“There are certainly pros to transferring debt,” he said. “You have that potential to save maybe thousands of dollars on interest. That can be real savings in your pocket.”
The key is to plan your payments so that you’re guaranteed to pay off your debt before the 0 percent interest offer expires, Castleman said. This means setting a budget listing your monthly income and expenses. Determine whether or not you have room in your budget to make high enough monthly payments to pay off your debt before the 0 percent offer expires. If so, you can then eliminate interest on that debt, if you stick to your payment plan.
But what if you don’t have enough money to pay off your debt in time or you have a history of not following budgets? Transferring debt to a credit card might end up hurting you.
“If you’re unable to pay off the full balance of your debt by the time the introductory period runs out, you’re in for a hefty bill,” said Chris Abrams, founder of Abrams Insurance Solutions in San Diego.
The interest rates on credit cards are almost always higher—often far higher—than the rates you’d get on any loan. And once those introductory offers expire, the interest rates on these cards switch from 0 percent to ones as high as 20 percent or more. If you still have a good chunk of your auto loan payment remaining on a card when the rate switches, you could shell out hundreds of dollars in extra interest payments each month.
“There’s a very real danger of your plan backfiring if you don’t pay off the debt in entirety before the introductory rate ends,” said Nishank Khanna, chief financial officer of New York City-based lending company Clarify Capital. “Your balance can balloon quickly. The situation can become quite dire as interest compounds, leaving the borrower with a massive balance that’s difficult to manage.”
Moving student, auto or home equity loan debt to your credit card can also damage your credit score. This score is important: Lenders look at it to determine if you qualify for loans and credit cards and at what interest rates. The higher your score—and lenders consider a FICO credit score of 740 or higher to be an excellent one—the more likely you are to qualify for a loan with a low interest rate.
“The thing with transferring loan debt to a credit card is that it will likely hurt your credit score and, if you don’t continue with good financial and repayment behavior, you could end up back where you started or worse,” said George Birrell, founder of New York City-based virtual tax service provider Taxhub.
But if you do pay off your transferred debt quickly? Birrell said that you will repair any temporary damage to your credit score. And the savings in interest could make this temporary pain worthwhile, he said.
Transferring a large amount of money to your credit card could increase your credit utilization ratio, a measure of how much of your available credit you are using at one time. The higher this ratio, the worse it is for your credit score. If your credit card has a credit limit of $10,000 and you transfer $9,000 worth of student loan debt to it, you are now using 90 percent of that card’s available credit, something that could drag down your credit score.
“Credit card debt affects your credit score in a more adverse way than does a student loan,” Castleman said. “You might want to apply for a home loan or car loan. But if you transferred a large amount of student loan debt to your credit card, you might not be able to qualify for those other loans because of the damage to your credit score.”
Which balance transfer card should you choose?
If you are interested in closing a balance transfer, you have plenty of choices.
- The U.S. Bank Visa® Platinum Card offers a 0 percent introductory offer for 20 billing cycles (14.49 percent to 24.49 percent variable APR thereafter).
- The Citi® Double Cash Card comes with a 0 percent APR on balance transfers for 18 months (13.99 percent to 23.99 percent variable APR thereafter). It also offers 1 percent cash back on all purchases and an additional 1 percent cash back when you pay for those purchases.
- The Wells Fargo Platinum Visa card is a basic card, but it comes with an 18-month 0% introductory APR offer which applies to both qualifying balance transfers and purchases from account opening (16.49%-24.49% variable APR thereafter)
- The Citi® Diamond Preferred® Card’s main benefit is its long 0 percent period. The introductory offer with this card lasts for 18 months, with a variable 13.74 percent to 23.74 percent APR after.
The bottom line
If you want to transfer loan debt to a credit card, you can find an issuer and a card that will allow it. Just remember to be smart: You can save plenty in interest by transferring loan debt to a card with a 0 percent interest rate period. But if you don’t pay that debt off in time, you’ll set yourself up for plenty of financial pain.