If you’re searching for ways to manage your debt or you’re shopping for a new credit card, you’ve probably seen the term “balance transfer.” Balance transfers are a common technique used to consolidate debt, save money on interest, and streamline finances.
Read on to learn all about what balance transfers are, how to perform one, and whether a balance transfer is the right move for you.
Table of Contents
What is a balance transfer?
A balance transfer, also called a debt transfer, is a transaction in which you move debt from one credit card to another credit card with a lower interest rate (usually referred to as an annual percentage rate, or APR).
Balance transfers can make paying down credit card debt easier, as they consolidate your outstanding balance onto one card and save money on interest.
However, balance transfers come at a price, as they often require balance transfer fees. These fees are usually 3% or 5% of the transfer amount, so balance transfers could cost a lot if you’re transferring a large sum of money. 1
What is a balance transfer credit card?
A balance transfer credit card is the credit card you transfer your balance onto. You can use one of your existing credit cards, or you can open a new credit card.
While any credit card can serve as a balance transfer credit card, the most common type are 0% APR credit cards. These are cards that offer an introductory 0% APR for a certain period of time (usually the first 6–18 months of card ownership).
After your 0% APR period ends, you’ll be charged interest on any balance you have left over.
How do balance transfers work?
Balance transfers work by:
- Moving all your credit cards debts onto a single card
- Sparing you from paying interest on that card, or at least saving you money on interest, over the period it takes to pay off your balance
- Charging a percentage of the transfer amount as a balance transfer fee
The main goal of a balance transfer is to lower your interest charges on existing debt. So balance transfers only work in your favor if you transfer your balance to a credit card that saves you more money in interest than you pay to open the card or as the balance transfer fee.
What happens after you finish paying off a balance transfer?
Once you’ve completed the entire process of paying down your debts, your balance transfer card will essentially be a regular credit card, which will function like a normal one (i.e., you’ll use it and make your payments on a monthly basis, you may earn rewards by using it, if you miss payments you’ll be charged late fees, etc).
How to transfer a balance from one card to another
If you think a balance transfer is the right method of credit card debt consolidation for you, you can transfer your balance from one card to another by following these steps:
1. Choose the card which you want to transfer the debt from
If you have multiple credit cards with outstanding debts, you need to choose your highest-priority card first. This card should either be the one with the highest interest rate or with the largest balance—whichever one is costing you more money.
When you perform your balance transfer, you’ll transfer your debts from this card first. Afterwards, you’ll transfer your remaining balances over as well if you have a high enough credit limit on your balance transfer card and can afford to pay another balance transfer fee.
2. Compare balance transfer credit cards
Before you apply for your new credit card, research all your options.
First, check your credit score so you have an idea of which cards you can qualify for. Borrowers with good to excellent credit (credit scores of 680+) will qualify for the widest range of cards. Borrowers with fair credit or bad credit may need to hunt more for a suitable card, and likely won’t get as favorable card terms.
Once you know where your credit stands, you can begin card shopping. When looking for a good balance transfer credit card, look for the following perks:
- 0% APR
- Low APR (especially if you can’t find a 0% APR card or will carry a balance beyond the introductory APR period)
- High credit limit (It should be high enough to take on the balance you’re transferring, with room to make future purchases on the card without going over limit and getting your card declined)
- Low or no balance transfer fee
- Rewards and other benefits
When choosing a balance transfer credit card, consider that this may become your primary credit card. So choose one that offers the perks you want most out of a credit card and fits your financial needs.
Furthermore, look for a card outside of your current issuer network. For example, if you’re transferring a balance from a Capital One card, don’t open a Capital One credit card as your balance transfer card. Balance transfers between cards from the same issuer are usually not allowed.
3. Do the math to see if a balance transfer is worth it
For this step, grab a pen and paper so you can work out the numbers. A balance transfer is only worth it if you save more on interest than you spend opening the balance transfer card.
The best way to illustrate this is with an example. Here are the details of a hypothetical balance transfer:
- Jane’s current credit card has a 20.25% APR and an outstanding balance of $3,000.
- She’s transferring onto a credit card with 0% APR for the first 6 months.
- The balance transfer fee is 3%.
- She estimates that she can pay off the balance in 6 months by paying around $500 every month.
Now she calculates whether transferring her balance is actually worth it by following these steps:
- She figures out that her monthly interest rate is around 1.7% (by dividing the annual rate of 20.25% by 12 months).
- If she pays $500 per month over the course of 6 months on her current card, she’ll still end up paying $135.66 in interest.
- Her balance transfer fee on her current balance would be $90 ($3,000 x .03).
- If her balance transfer has no additional fees (e.g., opening fees or annual fees), it’s worth it, because she can save $45.66 in total (after taking out the balance transfer fee).
Ultimately she decides to go through with the balance transfer because it will save her money in the end. If her balance transfer fee had been significantly higher (for instance, if it had been 5%, which would have translated to a total fee of $150), the balance transfer would have been a net loss and wouldn’t have been worth it.
4. Apply for a new card
The next step is to actually get your balance transfer credit card. Before you submit your application, make sure you’ve read through the card’s terms and conditions.
Keep your eye out for any 0% APR loopholes. For example, some cards may offer a 0% APR contingent on your creditworthiness. This means if your credit score isn’t high enough, you won’t be offered 0% APR. If you’re unsure of your creditworthiness and see this kind of fine print, you should find another card.
Be sure the card you’re applying for is the right one for your needs, as applying for new credit can actually hurt your credit score. Card applications trigger credit checks called hard inquiries, which knock points off your credit score. So choose which card or cards you apply to wisely to avoid damaging your credit.
5. Initiate the balance transfer
You can initiate a balance transfer online or over the phone. Calling your new credit card company is likely the easiest way to transfer funds from one card to another.
Call the phone number on the back of your balance transfer credit card and tell a representative that you want to transfer a balance. They’ll ask for your old account’s information (such as account number and card issuer) and how much money you’re transferring.
Some credit card issuers also allow balance transfers to be initiated online. Once you get your new credit card, sign up for an account if they offer account management services. Within your account, check the services and actions provided to see if you can initiate a balance transfer online.
6. Wait for the transfer to process
How long it takes your balance transfer to process will depend on your credit card issuer and transfer details. While it’s possible for a transfer to take up to 3 weeks, most transfers will only take 5–7 days to complete. 2
Once the process is complete, check to make sure that:
- Your old account shows a $0 balance or registers are paid in full.
- Your new account shows the transferred balance.
7. Pay off your balance in your new account
Now that you successfully transferred your balance from one card to another, it’s time to pay down your debts.
Divide your balance by the number of months you’ll keep your 0% APR on your new card. Aim to pay at least that amount each month to ensure you pay your balance off without accumulating new interest.
Pros and cons of balance transfers
Before you decide for or against transferring a credit card balance, know the pros and cons.
Benefits of balance transfers
The benefits of balance transfers include:
- Lower credit card interest rates
- Debt consolidation
- Streamlined credit card due dates (if all your debt is moved onto a single card)
- Better card rewards and terms (if you qualify for a more favorable card)
- More available credit (this impacts your credit utilization rate, the amount of your available credit that you’re using, which is an important factor in your credit score)
Drawbacks of balance transfers
Balance transfers also have their drawbacks, including:
- Balance transfer fees
- Balance transfers can temporarily hurt your credit (e.g., by triggering hard inquiries)
- Card options and credit limits available based on your credit score
- Possibly higher APR (if you exceed the 0% APR period)
- More available credit (this is both a pro and a con, as having more credit cards may make managing your finances difficult by tempting you to overspend)
Should I transfer my credit card balances?
Whether or not a balance transfer is the right move for you depends on your debt, your financial situation, and what balance transfer credit cards you can qualify for.
Before you commit to a balance transfer, first contact your current credit card issuer and see if you can negotiate a lower APR, ask them to waive any late fees you’ve been hit with, or defer your interest. Creditors may be understanding of your situation and offer solutions.
If you can avoid the fees and hassle of a balance transfer, you should. However, if too much credit card debt is affecting your life, a balance transfer may be your best way to save money and consolidate debts.