There are plenty of benefits to getting a credit card, but carrying one also comes with a big potential risk: You might run up so many charges that you struggle to pay off the debt. And with the average credit card APR sitting above 22%, that debt can keep growing thanks to interest charges. However, one solution to credit card trouble might sound surprising: another credit card. With a balance transfer credit card, you can shift around some or all of your outstanding balance and avoid paying additional interest for a period of time.
If you’re considering doing a balance transfer, you’ll pay for the privilege — but it just might make sense for your finances.
What is a balance transfer?
A balance transfer moves outstanding debt from one credit card to another. For example, if you are carrying $3,000 on a credit card with a 21% APR, you can transfer the balance to a credit card with a lower APR — or no APR — to potentially save money.
You’ll likely need to open a credit card with a different issuer to do a balance transfer. Issuers will typically not let cardholders transfer a balance between two of their cards.
Steps to complete a balance transfer
The steps for how to do a balance transfer on a credit card may look slightly different depending on the issuer, but expect to follow this path after you have done the research to find the best offer (more on that below):
- Initiate the balance transfer: If you’re opening a new card for the transfer, contact the issuer as soon as your application is approved to get the process moving. In some cases, you can complete an online balance transfer request form, but you may need to call the issuer directly. Share the details of your other card(s), including the account number and the balance you want to transfer. Be mindful of deadlines, too: Some credit cards require a balance transfer to be initiated within a certain time period after opening the account to qualify for a 0% offer.
- Wait for the new issuer to pay the balance: Balance transfers do not happen overnight. For example, Capital One says balance transfers can take anywhere from three to 14 days, while Chase states that most transfers take between one week and 21 days. No matter how long the transfer process takes, your payment obligations do not change until the old balance is paid in full. Make sure you continue making payments on time.
- Start making your new payments: Once the balance displays on your new card, it’s time to begin making your payments. Start with a dedicated attack plan to make sure you make at least the minimum payment each month and get the balance to zero by the time the introductory period is over.
When to consider a balance transfer
Brad Stroh, co-founder and co-CEO of digital personal finance company Achieve, said that balance transfers can make sense for borrowers who are confident that they can maximize the 0% APR period. They can be helpful if you “have the ability to pay off the balance transferred in full within the promotional period offered,” said Stroh. After that period, the rate will jump. “If you don’t pay off the balance in full by then, you’ll face steep interest and still be in debt.”
Stroh added that you’ll want to consider the upfront fee to make sure you’re getting a good deal. “If you were to transfer a balance of $9,000, the fee might be [between] $270 and $450. If you did not do the transfer, how much would you pay in interest on your original card? Be certain that the fee is less than the interest you’d pay on the original card if you did not do the transfer.”
How to find the best balance transfer card
Once you understand how to do a balance transfer on a credit card, you’ll need to find the right new card. The best balance transfer credit cards all share two key features: no annual fee and long 0% APR periods to give you extra time to tackle your debt without letting interest charges accrue. However, you’ll want to consider these questions to find a card that fits your needs:
- How much is the balance transfer fee? You’ll typically pay 3% to 5% of the balance in an upfront fee. Do the math to determine how much you will need to pay to move your balance versus how much you will save with the ability to put an end to interest for an extended period of time.
- What’s the potential credit limit on the new card? While many issuers don’t publicly advertise the maximum credit line offered on a new card, some cards do include the information in the fine print of the terms and conditions. Consider how much credit you may be guaranteed if approved versus how much you’re hoping to transfer. If your balance is much larger than the credit line offered, do the math to figure out if a balance transfer (and its fee) makes financial sense.
- Will the card be a good fit after the introductory period is over? You may be focused on how to do a credit balance transfer right now, but you need to consider how you will use the card in the future, if at all. Analyze the full fee structure and the rewards opportunities to determine if the card will be helpful for the long term.
Pros and cons of balance transfers
Before you commit to this strategy, be sure to weigh the pros and cons of using a balance transfer credit card:
Pros
- The potential to save some money: By cutting your interest rate to 0%, you can put a temporary pause on any additional finance charges on your debt. For example, if you owe $5,000 on a credit card with a 21% APR and you’re making a monthly payment of $300, you’ll pay off the balance in 20 months. However, you’ll also pay more than $850 in interest over that period.
- A faster journey to being debt-free: Since every dollar you pay will go toward the balance during the introductory period, you may be able to get your balance to nothing a bit quicker.
- The chance to increase your credit score: If you’re approved for a new credit card for the balance transfer, your credit limit will increase while your credit utilization ratio will decrease. Since your credit utilization ratio has a big impact on your credit score, you can potentially give your score a boost — as long as you keep your old card open to preserve that credit line.
Cons
- Fees: A balance transfer will initially increase your balance due to the upfront fee. On a $5,000 balance transfer with a 3% balance transfer fee, you’ll owe $5,150. With a 5% fee, that jumps to $5,250.
- Limits: Even if you’re approved for a balance transfer credit card, the new issuer might not give you a credit limit that matches your outstanding balance (or balances) on other cards. Additionally, Stroh said that some issuers will cap the balance transfer to a portion of your total limit such as 75%.
- A ticking clock: As soon as your balance transfers, the introductory period begins shrinking. While 15 or 18 months may sound like a long time, you’ll need to have a plan to make the most of each payment cycle. Once the introductory period is over, any remaining balance is subject to the standard APR.
Alternatives to balance transfers
A balance transfer isn’t the only way to get out of credit card debt. While it can be a good tool for relatively small balances, you may want to consider other options if you have bigger debt concerns.
Balance transfer vs. debt consolidation loan: If you have a larger chunk of debt from multiple sources — additional credit cards, student loans and/or personal loans, for example — a debt consolidation loan may be a better choice. While you’re unlikely to find a 0% APR period, debt consolidation loans, which are also marketed as personal loans, tend to offer longer repayment periods paired with competitive rates that can be lower than the APR attached to your credit card, plus a set monthly payment that will clear your debt on a certain timeline. Additionally, debt consolidation loans often offer the ability to consolidate tens of thousands of dollars of debt — much more than most balance transfer credit limits. There are downsides to consider, however. Rates can be much higher than credit cards if your credit isn’t in great shape, and some of these loans have additional fees.
Balance transfer vs. home equity line of credit: If you own your home, a home equity line of credit (HELOC) is another option for saving money on your credit card debt. While HELOCs don’t come with a 0% period, they do have much lower rates than credit cards and offer longer repayment terms. While you’ll get smaller monthly payments, there is a major downside: Your home is the collateral.
Balance transfer vs. debt management plan: If you’re in serious financial trouble, a balance transfer may not provide enough relief. Depending on the severity of your debt, you may want to look for non-profit credit counseling services that specialize in debt management plans. These organizations can help negotiate repayment terms with lenders that may be able to lower your interest rates and simplify your monthly bills. If this sounds like the route for you, proceed with caution. There are plenty of bad actors that prey on those in need of debt relief. Review any company you’re considering on the Better Business Bureau website to verify it’s legit.
Frequently asked questions (FAQs)
The time it takes to process a balance transfer varies widely, but don’t expect it to happen instantly. In some cases, it can take as little as three days, but you might need to wait more than a month.
No. All major banks have rules in place that prevent you from transferring balances between cards from the same issuer.
Yes. You could technically transfer a balance to a new credit card and pay it down as much as possible before the introductory period is over. Then, you could transfer the remaining balance to another card. However, you’ll likely pay a balance transfer fee each time you do it, and you may run into challenges with your credit score by regularly opening new cards.
No. Some credit cards do not allow balance transfers. Also, some credit cards offer balance transfers but without a lower APR.
