Carrying a balance on a credit card can be stressful when interest charges rack up month after month. Even if you’re paying more than the minimum, it’s easy to get stuck under a mountain of debt.
One option for relief is a balance transfer. It won’t eliminate your credit card debt, but it can effectively pause your interest charges so you have more control over your finances.
What is a balance transfer?
A balance transfer is when you move your balance from one credit card to another offering a lower or 0% annual percentage rate (APR) for a set period of time, usually six months to up to two years. For example, the Wells Fargo Reflect® Card offers new cardholders a 0% intro APR for 21 months from account opening on qualifying balance transfers (balance transfers made within 120 days qualify for the intro APR rate).
Not everyone will qualify for the top balance transfer programs. People with fair to excellent credit scores are most likely to be approved. For those with poor credit, a balance transfer may not be the most cost-effective option since interest rates are still likely to be in the double digits on most cards.
Balance transfer credit cards can be a smart strategy if you have a way to pay off your debt relatively quickly, says Jeanne Kelly, a New York-based credit coach and founder of The Kelly Group.
“I think it’s a great move as far as putting a plan together to pay off your debt,” Kelly says. “Oftentimes, unfortunately, I see that good intentions are there, but then the debt isn’t paid off and then the interest begins all over again in 18 months. And then it was a waste of an opportunity.”
How balance transfers work
Most credit card issuers offer a balance transfer program. Generally, they feature an introductory 0% APR on balance transfers that can last anywhere from six to 21 months. Sometimes these cards will also offer 0% APR on new purchases.
After the introductory window closes, the APR will increase, usually to double digits. This rate is variable (meaning it can go up and down), and it’s based on your credit score.
In order to take advantage of these intro offers, some cards require you to request the balance transfer within a certain number of days of opening your account. And it’s likely you’ll need to pay a fee, too.
Here are the steps to complete a balance transfer:
- Apply for a balance transfer card. Applying for a balance transfer card is as simple as going to a credit card issuer’s website and providing your name, address, Social Security number, income, and the amount you want to transfer. The company will check your borrower history by performing a hard inquiry on your credit report, which won’t take long.
- Initiate the transfer. If you’re approved, the new credit card issuer will give you instructions for transferring your balance either online or over the phone. Be prepared with your account number (it’s the same as your credit card number) and the balance amount. Keep in mind that a credit card issuer may approve your transfer application for a smaller amount than you requested. Say your debt balance is $10,000 and you have a $7,000 credit limit. You can only transfer an amount up to your credit limit.
- Pay the transfer fee. Most credit card issuers charge a balance transfer fee upfront. Usually it’s the greater of a percentage of the debt or a flat fee. For example, 3% of the balance or $20, whichever is higher. The fee can be off-putting on larger balances, but it’s often a small cost to avoid much higher recurring interest charges. But it’s good to run the numbers beforehand to make sure you’re saving enough on interest charges to justify the fee.
- Keep paying your bill. Balance transfers aren’t instantaneous. It can take up to a month for your balance to move to the new card, at which point the 0% intro APR period begins. In the meantime, keep paying your bill on the initial credit card so you don’t rack up any additional fees or interest charges.
- Confirm the old card has a $0 balance. Before you turn your attention to the new credit card, make sure your old credit card account shows a $0 balance. You may need to call to confirm. If you couldn’t transfer the full amount, you’ll need to continue paying off this card as well.
- Make a payoff plan. A balance transfer can certainly buy you some time, but it doesn’t erase your debt. The good news is that 100% of your payments will now go toward your principal balance, rather than partially covering interest charges. Still, Kelly suggests giving yourself a small buffer. “You really want to look at that calendar,” she says. “If they give you 18 months, try to pay in 17 [months].”
Do balance transfers hurt your credit?
Applying for a balance transfer will likely ding your credit score because the credit card issuer will perform a hard inquiry on your credit report to check your borrowing history.
But any negative impact on your credit score can be reversed rather quickly if you pay your bill, Kelly says. Making on-time payments and reducing your outstanding debt balances go a long way in lifting your score. Payment history and credit utilization—how much of your available credit is used, including what you owe, during a billing cycle—account for 65% of your FICO credit score.
“I would not suggest getting a balance transfer credit card when you are in the process of purchasing a new home,” Kelly says. Mortgage lenders look very closely at your credit activity to determine rates, and any drop in your credit score, however temporary, could hurt, she says.
Pros and cons of balance transfers
Whether a balance transfer is right for you depends on your financial situation. In general, there are a few pros and cons to consider.
A balance transfer can help you pay down debt without having to worry about your balance going up each month because of interest charges. Another upside is that if you have balances on multiple credit cards, you may be able to transfer everything to one card with a 0% intro balance transfer APR.
The best balance transfer credit cards also offer additional perks like cash back or miles—although not all cards offer anything extra. The Citi® Double Cash Card is an example of a cash back card that also has a good balance transfer offer. New cardholders can get a 0% intro APR on balance transfers for 18 months (after that, the variable APR will be 18.99%–28.99%, based on your creditworthiness). You can earn up to 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. It’s a smart incentive to help you stay on top of your credit card bills once you pay off your debt.
If you’re looking to get points, miles, or cash back on future purchases, but need to pay down a lingering balance first, a balance transfer may be a good stepping stone.
The interest-free period on a balance transfer offer is only temporary. If you can’t pay your entire balance off in that time frame, you’ll wind up paying a double-digit APR once again. Also keep in mind that most credit card issuers charge a balance transfer fee that’s due upfront. If you’re transferring a large balance and don’t have cash on hand to pay the fee, a balance transfer may not be the right move for you.
The biggest downside of balance transfers is simply that they aren’t accessible to everyone. Credit card issuers that have 0% intro APR offers can be strict about approvals, and often prefer borrowers with good to excellent credit scores. If that’s not you, says Kelly, keep your focus on debt payoff so you can raise your score.
“Do it without the 0% [APR offer] and really work hard on lowering that debt,” says Kelly, “because as you lower your credit card debt, your score will go up.”
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