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

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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 balance for a limited time (usually between 12 and 21 months).

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 a large amount of 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 off their debt.

In these instances where paying off debt the old-fashioned way seems insurmountable, a balance transfer card could be the tool you need.

When you transfer debt to a balance transfer credit card, you begin saving money on interest right away. Not only that, but every dollar you pay toward the credit card bill will go directly to the principal balance you owe. For that reason, a balance transfer credit card can be a valuable tool for those looking to get out of debt.

What is a balance transfer credit card?

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 (usually with at least a $5 minimum) on every balance you transfer to your new card.

Note that it generally takes between one week and one month to transfer a balance to a new balance transfer card. Be sure 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.

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 21 months. This means you can save hundreds or 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.
  • Improve your credit score: A balance transfer could improve your credit score. When you open a new line of credit, you’ll generally see your credit utilization ratio improve. 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.

Cons of balance transfers

  • Balance transfer fees apply: You’ll typically need to pay an upfront fee equal to 3 percent or 5 percent of your balance, which can eat away at your interest savings. However, there are a few cards with no balance transfer fee on the market.
  • Introductory offers don’t last forever: The longest balance transfer offers last for 18 or 21 months, and some only last for 12 months. After your introductory APR period ends, you’ll start paying your credit card’s regular variable APR on any remaining balance.
  • Balance transfers can be a band-aid for a larger problem: If you have an issue with overusing credit cards, 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 without changes to your spending habits.

What to consider before doing a balance transfer

Before you pursue a balance transfer, consider the following:

  • Do you meet the credit score requirements? Many of the top balance transfer credit cards are designed for people with good or excellent credit (or a score of 670 to 850), but there are also balance transfer options available for people with less-than-good credit.
  • What are the potential fees? Most issuers will charge you a balance transfer fee—typically 3 percent to 5 percent of the total amount transferred. This means if your approved credit limit on your new balance transfer card is low, you may not be able to transfer your full balance when you factor in a fee. However, some cards offer a lower fee if you transfer a balance within a predetermined period of time.
  • How long is the introductory 0 percent APR period? Consider the length of the introductory offer and the listed terms and conditions (like completing the balance transfer within a certain time period) to ensure you’re using the allotted time to initiate a balance transfer. The best balance transfer cards available have introductory 0 percent APR offers lasting 12 to 21 months. It is important to take full advantage of this time period in order to pay down your debt without paying interest.
  • Your credit limit may restrict how much you can actually transfer. How much debt you can transfer will vary by issuer. Issuers will review your credit history and income, for example, to determine your credit limit. It is impossible to predict how much you will be approved for ahead of time. Be prepared to not be able to transfer your full balance if your approved credit limit is low.
  • Balance transfers are not instantaneous. Depending on the issuer, your balance transfer could take seven days to six weeks to complete. While you wait for your balance transfer to complete, keep making payments on your original card.

Is a balance transfer right for me?

Balance transfers are best for those with 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.

That said, 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.

If you have a debt larger than your potential new credit limit, have a lower credit score or need a longer payoff plan, it’s worth considering a personal loan. Although you’re unlikely to get a 0 percent intro APR on a personal loan, interest rates on standard personal loans from banks and other financial institutions tend to be a lot lower than credit card interest rates. If it’s going to take you a while to pay off your debt, you may be better off with a personal loan.

The bottom line

Figuring out what a balance transfer is could be the first step to becoming free of debt, but do your research. 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’re deep in 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.

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