What is a balance transfer credit card and how does it work?

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Credit cards come with some major perks, including the potential to earn rewards and get some cardholder protections for free. Not only that, but they’re very convenient for purchases made in-person or online—some might even say they’re too convenient.

Because it’s so easy to rack up balances when you shop with a credit card, some consumers end up in a position where they have considerable debt to pay off. And since the average credit card interest rate is currently over 16 percent, many people find themselves paying so much interest on their balances that it can take years, or even decades, to pay their debt off.

In these instances where paying off debt the old-fashioned way seems insurmountable, a balance transfer card could be the tool you need. Keep reading to find out the answers to questions like, “What is a balance transfer?” and “How does a balance transfer work?”

What is a balance transfer credit card?

A balance transfer credit card is any credit card that lets you transfer balances from other accounts. Most of the time, balance transfer credit cards offer consumers an introductory 0 percent APR—or zero interest—on their purchases for a limited time (usually between 12 and 20 months).

When you transfer debt to a balance transfer credit card, you begin saving money on interest right away. Not only that, but every penny you pay toward the credit card bill will go directly toward the principal balance you owe. For that reason, balance transfer credit cards are valuable tools for consumers who want to get out of debt.

How do balance transfers credit cards work?

When you apply for a balance transfer credit card, you’ll be able to indicate which balances you’d like to transfer to the card upon approval. Then, you’ll enter the account number from each credit account you’d like to transfer, as well as the amount of money you plan to move to your new balance transfer credit card.

In order to complete the balance transfer, you’ll likely also need to pay a balance transfer fee of 3 percent to 5 percent (usuall with a $5 minimum) on every balance you transfer to your new card; this fee is typically paid upfront.

Note, it generally takes between one week and one month to transfer a balance to a balance transfer card. Be sure to continue to make regular payments on all of your existing credit cards until you have confirmed that your balances have transferred in full and any final interest charges have been paid off.

Is a balance transfer right for me?

Balance transfers are best for people who have a lot of high-interest debt to pay down. By moving debts to a new credit card that extends a 0 percent APR for a limited time, you get the chance to save money on interest and pay down the balance at a much faster pace.

With that being said, balance transfers have just as many downsides as advantages. Some people take out balance transfer credit cards with good intentions but find themselves racking up new balances on their credit cards even as they work to pay their old balances off. If you’re not ready to commit to paying off your credit card debt without taking on new debt, a balance transfer credit card might not be the right option for you. At the end of the day, your success with a balance transfer credit card depends largely on how you use it and how prepared you are for the debt repayment process.

Pros of balance transfers

  • Pay zero interest for a limited time: With the right balance transfer credit card, you can save money on interest for up to 20 months. This means you can save hundreds, even thousands, of dollars as you pay down debt.
  • Simplify repayment: A balance transfer credit card lets you move several different accounts to one new one, which means you can pay one large bill each month instead of several small ones.
  • Pay down debt faster: Without any interest charges accruing each month, every cent of your payment goes toward your principal balance. This means you can pay down debt faster and with less effort.
  • Access other cardholder perks: Some balance transfer cards come with additional benefits like consumer protections and the ability to earn rewards.

Cons of balance transfers

  • Balance transfer fees apply: You’ll typically need to pay an upfront fee that’s usually equal to 3 percent or 5 percent of your balance, which can eat away at your interest savings.
  • Introductory offers don’t last forever: The longest balance transfer offers last for 18 or 20 months, and some only last for 12 months. After your introductory 0 percent APR period ends, you’ll be back to paying whatever variable rate your credit card normally charges.
  • Balance transfers can be a band-aid for a larger problem: If you have an issue with overspending, a balance transfer credit card could hurt more than it helps. Always remember that balance transfers only move debt around and that your situation won’t improve if you never change your spending habits.

Do balance transfers hurt your credit score?

A balance transfer could in fact improve your credit score. When you open a new line of credit, you’ll generally see your credit utilization ratio improve. Your credit utilization ratio, which compares your available credit to your current debt, typically makes up 30 percent of your credit score.

If you make regular monthly payments on your transferred balances without taking on any new debt, your credit utilization ratio will continue to go down—meaning your credit score should continue to go up. Plus, you’ll reap the credit-boosting benefits of all of those on-time credit card payments, which make up 35 percent of your credit score.

How to choose a balance transfer credit card

Picking the right card for a credit card balance transfer takes a little time, but the process could help you avoid false starts and missteps along the way.

1. Take a close look at your debt

Before you get started with the balance transfer process, take a close look at all your debts to see how much you owe. Review your credit card balances as well as any other high-interest loans you have. From there, make a list of each debt you owe along with its respective interest rate or APR.

2. Check your credit score

Checking your credit score will help you narrow down your choices. Many of the top balance transfer cards are designed for people with good credit or excellent credit, but there are also balance transfer options available for people with less-than-good credit. The Discover it® Secured Credit Card, for example, offers an intro 10.99 percent APR on balance transfers for six months (22.99 percent variable APR thereafter). It’s not as useful as a 0 percent APR offer, but it may still better than the interest you’re paying on your existing balances.

3. Compare cards and offers

When you shop around for a balance transfer credit card, you’re likely to see a lot of possible candidates early on. You can find many cards offered online by credit card issuers and marketplace websites. You might find offers through your bank or credit union.

The keys to narrowing down your choices include looking at:

  • Length and interest terms of introductory offer. The best offers usually have introductory zero interest periods lasting between 12-20 months. On a sliding scale, the less advantageous offers will last less than 12 months and could have introductory periods of low interest rather than zero interest.
  • Terms and conditions. You’ll find information about fees and other important details in the fine print. For instance, most offers specify that you have to complete the balance transfers within a certain time period after you open the account to receive the introductory interest rate.
  • Regular APR. It’s important to know how much interest you’ll be charged once your introductory APR period runs out. Compare these rates against current credit card interest rates to learn how each card’s APR stacks up against the average.
  • Rewards. Some balance transfer credit cards have rewards programs that earn cash back or points. Although you should make paying the balance your top priority, a card with a rewards program could prove useful in the long run.

4. Do a practice run

You can use Bankrate’s Credit Card Balance Transfer Calculator to get an idea of how the process might work with your current card and any balance transfer cards you’re interested in applying for. You’ll be able to see estimated interest payments and compare the timelines for paying off your debt.

How to complete a balance transfer

Requesting a credit card balance transfer is quite straightforward. Once you have found a balance transfer card with terms you are happy with, you should take the steps required to apply. This involves sharing basic personal and financial data such as your name, address, Social Security number, employment situation and income. Most of the time, you’ll find out if you are approved for an account in a matter of minutes.

When you apply online, you may also have the chance to initiate your balance transfers right away. This typically means entering the credit card numbers and account information for each balance you want to transfer, as well as the issuing bank and their mailing information.

If you don’t want to transfer balances online or you already have a balance transfer card you want to use, you can also call in using the back of the number of your card to start the transition. In this case, you’ll share the account information and balance transfer amounts with a live operator, and they’ll help the process move forward with your help.

Once your balance transfer is underway, keep in mind that it can take one week or up to a month for your balance transfer to be complete. You’ll want to keep making payments on your old accounts during that time and only stop paying on existing credit cards once you have confirmed your balances have been transferred and old accounts show a $0 balance.

Balance transfer process by issuer

The balance transfer process can vary slightly by issuer. The following guides can help you transfer balances without any problems:

What to do when the 0 percent APR introductory offer ends

While your balance transfer card might give you an introductory 0 percent APR for up to 20 billing cycles, all good things come to an end. With that being said, you’ll want to have a plan for how to move forward once you’re no longer enjoying zero interest on your balance.

If you still have balances to pay off, you have two main options to consider. You can:

  • Continue making payments at the regular variable APR until you’re debt-free
  • Apply for another balance transfer card that gives you an intro 0 percent APR again

If you decide to transfer balances to a new balance transfer card, keep in mind that you’ll accrue another balance transfer fee to do so. Also, keep in mind that, if you really want to get out of debt, it’s wise to stop using credit cards. After all, paying down balances is infinitely harder if you continue to work against your goals by using your credit card for purchases.

Balance transfer credit cards vs. personal loans

A credit card balance transfer might not be the best option in all cases. Here are some of the conditions that could make a personal loan more favorable than a balance transfer:

  • You have a larger debt. The amount of debt you can transfer to a balance transfer credit card typically can’t exceed your credit limit. For most consumers, the ceiling for balance transfers is about $10,000.
  • You have a lower credit score. Balance transfer credit cards generally require a good to excellent credit score. Good credit scores are preferred for loans, but bad credit loans are also available.
  • You need a longer payoff plan. The window for a zero-interest balance transfer can range anywhere from six to 20 months, while the payoff period for loans is typically measured in years, not months.

Here’s an important point to remember about loans. Interest rates on standard personal loans from banks and other financial institutions tend to be a lot lower than credit card interest rates. However, without an introductory zero interest rate and a longer payoff period, you’re unlikely to have the opportunity to avoid paying interest altogether on a loan, even for a limited time.

Like many decisions about personal finance, the question of balance transfer credit cards vs. loans involves trade-offs.

The bottom line

Figuring out what a balance transfer is could be the first step to becoming debt-free, but you should take the time to do a little more research before you move forward. For example, you should compare all the top balance transfer credit cards on the market today and go through all your bills to find out exactly how much you owe and to whom.

If you really want to get out of debt, you’ll need to face the details of your situation head-on. You’ll also want to create a plan that helps you avoid using credit cards and racking up more debt along the way. A balance transfer can help you get where you want to be much faster, but only if you’re honest with yourself.

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson began her career working in the funeral industry, which may make you wonder why she works in personal finance now. Yet, the funeral industry taught the author everything she needs to know about the value of one's money and time. Johnson left the mortuary business a decade ago in order to explore her passion for personal finance and travel the world, and since then, she and her husband have built a debt-free lifestyle that has them on the path to retire very wealthy in their 40s. Holly's love of budgeting also led to the creation of her debt payoff book, “Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love."