What are balance transfers and how do they work?

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Credit card debt is a struggle for many American households. In fact, a 2019 Bankrate survey found that three in 10 households have more credit card debt than money in savings.

Since the average credit card annual percentage rate (APR) is over 16 percent, it often takes longer than anticipated for cardholders to pay down their debts — with significant sums of money lost to interest along the way.

One common tactic for paying off debt is a balance transfer. Many credit card issuers offer balance transfer credit cards with zero percent introductory APR periods that allow you to transfer existing debts to a new credit card so you can pay it down without added interest. This means every dollar you pay goes directly toward your revolving balance and helps get you out of debt more quickly.

You can even use a balance transfer credit card to wipe out your debt, interest-free, as long as you pay off your transferred balances before the intro APR period runs out. You’ll likely need to pay a balance transfer fee of 3 to 5 percent on every balance you transfer to your card; still, a balance transfer credit card is a great way to clear out old balances, get out of debt and boost your credit score.

If you’re carrying balances on multiple credit cards, it might be time to consider a balance transfer card. Here’s a detailed look at how to transfer a credit card balance, the pros and cons of the balance transfer process and how to choose the best balance transfer credit card for you.

What is a balance transfer?

A balance transfer is an opportunity for you to transfer a balance from an existing credit card to a new one. By transferring old credit card balances onto a balance transfer card, you can consolidate your debt and, in many cases, pay it off faster.

Many balance transfer cards offer an introductory zero percent APR period of at least six months during which you can pay down your transferred balance without paying interest. The best balance transfer credit cards offer a zero percent introductory APR on balance transfers for 15 to 21 months, giving you well over a year to pay off your transferred debt, interest-free.

A balance transfer credit card can also boost 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, 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.

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.

Should you do a balance transfer?

Balance transfers have both pros and cons. If you choose — and use — your balance transfer credit card wisely, you’ll be able to pay off your debt in full before the intro APR runs out. However, you could also find yourself in a situation where you don’t pay off your whole debt before the regular APR kicks in, which means you’ll be back to paying interest on your transferred balance.

Pros of balance transfers

  • Save money on interest for a limited time: Balance transfer credit cards typically let you avoid paying interest on your balances for 6 to 21 months. Since credit card interest rates tend to be high, avoiding interest for a long stretch of time can help you save significant sums of money.
  • Consolidate multiple monthly payments into one: A balance transfer credit card makes it easy to consolidate several credit card bills down to just one, which can simplify your financial life in a big way.
  • Get out of debt faster: Since you don’t have to pay interest on your balances for 6 to 21 months, balance transfer credit cards make it significantly easier to make a big dent in your debt in a short amount of time.

Cons of balance transfers

  • Balance transfer fees apply: Most balance transfer cards require you to pay 3 to 5 percent of your balance upfront in order to execute the transfer. These fees can be well worth it when you consider the interest savings, but you should still factor them into your debt payoff plan.
  • Introductory offers don’t last forever: Your balance transfer zero percent introductory APR offer will eventually end. If you don’t pay off the majority of your debt by the time your offer is over, you’ll find yourself back where you started — paying high interest rates on your outstanding balance.
  • You could be exposing yourself to more debt: Moving credit card balances onto a balance transfer credit card can tempt you into putting new purchases on your balance-free cards. You may want to hide those old credit cards in a safe or sock drawer so you’re less likely to use them for purchases you cannot pay off.

How do you do a balance transfer?

Requesting a credit card balance transfer only takes a few minutes — but you’ll be better prepared for the balance transfer process if you do a little prep work beforehand. Here are four steps we recommend taking to ensure you are ready to choose the best balance transfer credit card for you and pay off your balance transfer debt.

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.

When you begin transferring balances to your new balance transfer credit card, start with the highest-interest debt first. That way, if your balance transfer credit card’s credit limit runs out before you finish transferring all of your balances, you’ll have already transferred the debt that is likely to cost you the most money in interest.

2. Check your credit score

Check your credit score to learn which balance transfer cards are best for you. 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 card, for example, is a secured credit card that offers 10.99% APR on balance transfers for six months (22.99% variable APR thereafter) — which isn’t as great as a zero percent APR offer but is still better than the interest you’re probably paying on your existing balances.

3. Begin the balance transfer process

Once you’ve found a balance transfer card that meets your needs, it’s time to apply. As you begin the credit card application process, be prepared to provide basic personal and financial data such as your name, address, Social Security Number and income. In most cases, you’ll learn whether you’ve been approved within minutes of completing the application.

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. Enter the 16-digit number of the credit card(s) from which you plan to transfer the balance, as well as the amount of money you’d like to transfer to your new balance transfer credit card.

If you already have a balance transfer credit card and want to transfer an additional balance to your card, you can complete a similar balance transfer process online or over the phone. Make sure you have your credit cards’ balances and 16-digit numbers easily at hand before you begin.

Although it only takes a few minutes to apply for a balance transfer card and complete a balance transfer request, it generally takes between one week and one month to transfer a balance to a balance transfer card. 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.

4. Create a debt payoff plan

Now that you have a balance transfer credit card with an introductory zero percent APR, it’s time to put that interest-free period to good use. Remember that each dollar you pay utilizing a zero percent APR has a bigger impact since none of your money is going toward interest payments. The more you can pay now, the less debt you’ll have to repay later.

With that in mind, take some time to sit down with your monthly bills, bank statements and pay stubs to create a simple, pen-and-paper monthly budget (or consider signing up for a budgeting app, if you aren’t already using one). Take a look at where your money is going and figure out if there are any areas in your spending you could cut — at least temporarily. Ask yourself how much money you can afford to put toward your balance transfer credit card every month, then start getting out of debt one payment at a time.

Remember: It will be extremely difficult to get out of debt if you keep adding to the pile. For that reason,  consider putting a pause on credit card use altogether while you focus on your debt repayment plan. Once you’re debt-free, you can consider using them again.

How to do a balance transfer with different issuers

Each credit issuer has a slightly different method of completing the balance transfer process. Here’s what you need to know:

What is a balance transfer credit card?

A balance transfer credit card has terms specifically designed to help you manage and pay off the balances you’ve charged to your existing cards. While many (but not all) credit cards allow you to transfer a balance from another card, the best balance transfer cards offer generous introductory zero percent APR periods so you can work on paying off your balances without paying interest.

Let’s say you owe $4,000 in debt on a credit card with 19 percent APR, and you’re currently paying $80 per month. At this rate, Bankrate’s credit card payoff calculator indicates it would take you 100 months (more than eight years) to become debt-free. You’d also end up paying an extra $3,988 in interest along the way — almost double what you actually spent.

Now, let’s imagine you found a balance transfer credit card that would grant you 18 months at zero percent APR in exchange for a 3 percent balance transfer fee. Moving your balance over would cost you $120 in fees upfront, but you would have 18 months to pay off the debt without any interest.

If you continued paying $80 per month during that time, you could wipe out $1,440 of your balance within 18 months with zero interest paid. After the introductory period, the card’s regular variable APR would be in effect for your remaining balance of $2,560 (not including your balance transfer fee). If you continue making the same monthly payment (assuming an average APR similar to that on your original card), you’ll likely pay a little over $1,000 in interest as you chip away at the rest of the balance over the next 40+ months.

However, if during the introductory period you’re able to cut your expenses and bump your monthly payment up to $223, you could pay off the entire balance over 18 months without any further interest payments.

You can transfer balances from multiple credit cards to your new balance transfer card, although it’s important to keep in mind the credit limit on your new card and that a balance transfer fee will apply with each transfer. A balance transfer calculator is a great tool to determine if a balance transfer is right for you and how to make the most of your balance transfer credit card.

How to choose a balance transfer credit card

When you’re trying to decide between balance transfer credit cards, it’s important to compare all of the available information, from zero percent introductory APR offers to rewards structures to additional card perks. It’s also important to know how your credit history might factor into the application and approval process.

Here’s what to look for when comparing balance transfer cards:

  • What credit score is required? The top balance transfer credit cards are designed for people with good or excellent credit, but it’s possible to do a balance transfer with bad credit. Once you know which balance transfer credit cards are right for someone with your credit history, you can start looking more closely at APR, fees and other factors.
  • How long is the zero percent intro offer for balance transfers? Most balance transfer credit cards offer at least six months free of interest on transferred balances, and the best balance transfer cards offer a zero percent APR for 15 to 21 months. Look for balance transfer cards that will give you enough time to pay off your balance in full before the introductory period expires.
  • What is the 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.
  • What is the balance transfer fee? Most balance transfer cards charge an upfront fee of 3 to 5 percent of your balance. A handful of balance transfer credit cards don’t charge balance transfer fees, but these no-fee balance transfer cards often come with shorter introductory APR rates.
  • Is there an annual fee? Most balance transfer cards don’t charge an annual fee, but make sure to double check.
  • Can you earn any rewards? Some balance transfer credit cards offer cash back rewards on new purchases. Keep this in mind as you compare offers.

What to do when the zero percent APR introductory offer ends

While balance transfer offers can help you save money on interest while you pay down debt, your zero percent APR introductory offer will eventually come to an end. At that point, your credit card’s interest rate will reset at the normal variable APR.

If your debt is completely paid off by the time your introductory APR ends, your best bet is using credit cards with extreme caution. Only charge purchases you can afford to pay off each month, and always pay your credit card bill early or on time. If you continue using credit cards without a plan to pay them off, you could easily wind up in debt again.

If you still have debt when your introductory APR offer ends, you have a few choices. You can continue paying as much as possible to erase your debt as fast as you can, but you could also seek out another balance transfer credit card and start the process over. Just remember that transferring balances to score an introductory APR a second time will likely involve another balance transfer fee.

The bottom line

A balance transfer can be a valuable tool if you’re struggling with high-interest debt. Many credit card issuers offer balance transfer cards with introductory, interest-free APR periods, allowing you to transfer various debts to a new credit card and utilize a zero percent APR period to pay down what you owe.

After you get your credit card debt paid off in full, do your best to avoid carrying any new revolving balances.