Advertiser disclosure

How Do Balance Transfers Work? A Comprehensive Guide

A balance transfer is essentially paying off one credit card with another. The smartest way to do a balance transfer is to get a card with an introductory 0% APR offer, which enables you to pay the debt off faster and with less interest overall.

If you’re a credit card holder, odds are you’ve heard of a balance transfer. Maybe you even know a little bit about them.

But how do balance transfers work?

Balance transfers involve moving an existing debt from one credit card to another – often with lower interest rates or more attractive terms than you’re currently paying.

But do they really make sense for everyone?

In this article, we’ll look at how balance transfers work, what fees may be involved, and what to consider when looking for the right credit card for doing a transfer.

We’ll also explore other options besides using a credit card so you can decide if it’s worth pursuing a balance transfer or not.

What is a Balance Transfer?

A balance transfer is when you move existing credit card debt (either a single card or multiple credit card balances) to consolidate them onto another card.

The new balance transfer card will typically offer an introductory period with no or low interest rate on the transferred amount (called the “intro APR”), allowing you to pay off your credit card balance faster and save money in the process.

You’ll need to have a good credit score to qualify for some of the best balance transfer credit cards, and it’s important to read all terms and conditions carefully before proceeding with the transfer as there may be balance transfer fees associated with it, as well as other “fine print” you’ll want to make sure you’re aware of.

Benefits of a Balance Transfer

The primary benefit of doing a balance transfer is that it allows you to consolidate high interest debt into one payment at a potentially lower interest rate than those offered by your existing credit card account.

Additionally, some credit card issuers offer promotional periods where they waive any balance transfer fees associated with transferring balances over certain amounts, or provide other incentives such as credit card rewards (like cash back) on purchases made during the introductory period.

Types of Balance Transfers

There are two main types of credit card balance transfers – direct transfers and indirect transfers – each offering different benefits depending on your needs and situation.

Direct balance transfers involve moving existing debt directly from one card issuer (e.g., Visa) onto another (e.g., Mastercard).

Indirect balance transfers involve using third-party services like PayPal or Venmo which allow users to send money between accounts without having access to any personal data such as bank account numbers

A balance transfer is a great way to save money on interest payments and consolidate credit card debt, but it’s important to understand how the process works before taking advantage of this option.

The next section will discuss how a balance transfer works.

How Does a Balance Transfer Work?

Consolidating your credit card debt onto a single credit account can be an effective way for reducing interest charges and consolidating multiple debts into one payment.

Understanding how a balance transfer works, as well as the potential pitfalls associated with it, can help you make smart money decisions when considering this option.

Steps Involved in a Balance Transfer

The process of transferring your balance from one credit card to another typically involves filling out an application on the new credit card issuer’s website or calling their customer service line.

Once approved for the new balance transfer credit card, you will need to provide information about the account you are transferring from and specify the amount of debt that needs to be transferred.

In most cases, you’ll be required to pay a balance transfer fee. From my experience, a typical balance transfer fee is anywhere from 3-5% of the transfer balances. This is then added to your existing credit card balance at the promotional rate.

After that, it usually takes two to three weeks for the funds to be transferred over and applied against your new account’s balance.

Eligibility Requirements for a Balance Transfer

To qualify for a balance transfer card, you must have good or excellent credit (generally defined as having scores above 670).

Additionally, some issuers may require that your current credit card debt not exceed certain limits before they approve your request.

You should also keep in mind that most banks limit balance transfers between cards issued by different companies so check with both issuers before applying if this applies in your situation.

A balance transfer can be a great way to manage debt and save money, but it is important to understand the process, eligibility requirements, fees, interest rates and other potential pitfalls before doing one.

Now let’s take a look at what the cost of doing a balance transfer may be.

What is the Cost of Doing a Balance Transfer?

As I eluded to above, balance transfer fees can eat away at your savings if you’re not careful in choosing the right offer. A low balance transfer fee is ideal when trying to consolidate credit card debt to pay it off faster.

Fees Associated with Doing a Balance Transfer

When considering doing a balance transfer, it is important to be aware of any balance transfer fee associated with this type of transaction. Most credit cards will charge an upfront fee for transferring balances from one card to another.

This balance transfer fee typically can range anywhere from 3% to 5% of the total amount being transferred and is typically charged as part of the initial payment.

Additionally, some cards may also charge an annual fee or other additional fees (in addition to the transfer fee) that should be taken into consideration when making your decision.

Interest Rates on Balances Transfer Credit Cards

Another cost to consider when doing a balance transfer is the interest rate applied to any balances transferred over. Depending on your credit score and other factors, you may qualify for something like a 0% intro APR for up to 12-15 months (or longer in some cases).

However, if you don’t qualify for these promotional rates during an introductory period, you could end up paying a much higher interest rate on your credit card balance, which can add significantly more cost onto your balance transfers over time.

Other Fees

In addition to the balance transfer fee and interest rate, there are several other costs that should be considered before deciding whether or not to do a balance transfer.

These include things like late payment penalties, cash advance fees, foreign transaction charges and more depending on what type of card you choose.

Again, it’s important to read through all terms and conditions carefully so that you know exactly what costs are involved before committing yourself financially.

It’s important to understand the cost of doing a balance transfer before you decide to apply for a new balance transfer credit card.

There are various fees (like the balance transfer fee we talked about), interest rate stipulations, and other costs associated with this process that can affect how much money you save in the long run.

In the next section we will discuss what features to look for when choosing a credit card for doing a balance transfer.

What Should You Look for in a Balance Transfer Credit Card?

When choosing a balance transfer credit card, there are several features to consider. First, it’s important to make sure the card offers an intro APR period on balance transfers. Look for a 0% intro APR if you can.

This will allow you to move your existing credit card debt from one card to another without accruing interest during the promotional period. Additionally, look for balance transfer credit cards that offer no annual fee (or low fees) in order to save money over time.

What Is a 0% Apr Balance Transfer?

Many credit cards offer a low (or even nonexistent) introductory interest rate as incentive to apply.

The kings of balance transfer cards are those that offer a 0% intro APR. This allows you to transfer a balance and immediately stop the exorbitant interest payments the banks are taking from you.

For example, let’s say you’re carrying a $4,000 balance on a card with a 20% APR — and you’re only making the minimum payment of $95 each month. At this pace, it will take you 73 months to pay off the balance. With interest, you’ll end up paying almost $3,000 in total.

Now let’s say you open a card with 0% intro APR for 21 months on balance transfers and an ongoing APR of 16%. You could pay off your debt in 44 months with the exact same payment amount, and you’d only be paying a little over $900 in total interest. That’s a savings of more than $2,000 in interest payments — just from opening a balance transfer card.

You can use our debt payoff calculator to see when your credit card balance would be paid off at its current APR and minimum payment. Again, remember to take into account the fee associated with your balance transfer.

Credit Cards Rewards

Rewards and benefits offered by credit cards can also be beneficial when doing a balance transfer.

Look for cards that offer cash back rewards or other perks such as airline miles or hotel points which can help offset the cost of transferring balances between accounts.

Additionally, some cards may provide additional incentives such as waived late fees or discounts on purchases made with the card.

Other Factors to Consider

Other factors to consider when selecting the right credit card for doing a balance transfer include customer service options and security measures taken by the issuer. It’s important to find out what type of customer service is available if you have any questions about your account or need assistance with making payments on time each month.

Additionally, it is essential to check into what kind of fraud protection measures are in place so that you can be sure your information is secure while using the card online or at retail locations.

When considering a credit card for doing a balance transfer, it is important to look at the features, rewards and benefits offered by the card as well as other factors. However, there are also alternatives to using a credit card that should be explored in order to make an informed decision.

How Much Can You Transfer?

You can transfer as much debt as your credit limit allows.

In other words, if the “destination” card where you want your debt to land has a $5,000 credit line, you can’t transfer more than $5,000. Balance transfers aren’t considered purchases, but they eat up your credit line in the exact same way.

There are some exceptions to this. In some rare cases, your “destination” card may not allow you to max out your full credit line with a balance transfer. Card issuers also may cap the total amount you can transfer if you’ve got an exceeding amount of debt.

Here’s a quick guide to how much you can balance transfer with the leading banks:

  • American Express — 75% of your credit limit or $5,000 (whichever is less)
  • Capital One — Full credit limit (minus balance transfer fee)
  • Chase — 95% of your credit limit or $15,000 (whichever is less)
  • Citi — Full credit limit (minus balance transfer fee)
  • Discover — 95% of your credit limit (to leave room for balance transfer fee)

(Figures provided above subject to change.)

What Kind of Debt Can You Transfer?

The type of debt you can relocate to your new card depends on your credit card issuer.

Here are the forms of debt each major bank accepts for balance transfers. It’s worth mentioning that you cannot balance transfer any debt within the same bank. You must be transferring from a different bank.

  • American Express — Credit cards
  • Capital One — Credit cards; personal loans; auto loans; student loans; home equity loans
  • Chase — Credit cards
  • Citi — Credit cards; personal loans; auto loans; student loans; home equity loans
  • Discover — Credit cards; personal loans; auto loans; student loans; home equity loans

Certain issuers may allow the transfer of debts like medical bills and payday loans, as well.

Are There Alternatives to Using Balance Transfer Credit Cards?

When it comes to balance transfers, many people assume that using a credit card is the only option. However, there are actually several alternatives available for those looking to make smart money decisions with their finances.

Overview of Alternatives To Using A Credit Card For A Balance Transfer

One alternative to using a credit card for a balance transfer is taking out a personal loan from your bank or other financial institution.

A personal loan can be beneficial if you have good credit and need access to more funds than what would be available on a credit card limit. Additionally, personal loans typically come with lower interest rates than those associated with most balance transfers done via credit cards.

Money Under 30 has partnered with a number of lending partners to make it easier than ever to check your personal loan rate with no impact on your credit score.

Find Your Personal Loan

See great personal loan rates you qualify for in minutes from our trusted lending partners.

This service performs a soft credit check so there's no impact to your credit score, and never any obligation to request or take the loan.

  • Won't affect your credit score
  • Check your APR and loan amount before you apply
  • Access to multiple lending partners
  • Personal information required to see rates
  • High APRs for applicants with fair or low credit
Check Your Rates

Another option is transferring the debt directly between two banks or lenders; this process may involve fees but could potentially save you money in the long run depending on how much debt you’re transferring and which lender offers better terms and conditions.

Personal loans offer low-interest rates compared to some other forms of financing, however they often require collateral such as property or assets in order to secure them which can put some people off applying for one.

Directly transferring debt between two banks or lenders also has its advantages such as avoiding any additional fees associated with balance transfers made through third parties like credit cards companies.

But it does mean having less control over when payments are due and how much interest will be charged each month so it is important to do your research before committing yourself into an agreement like this one.

It’s important to consider all of your options when it comes to balance transfers, and understand the pros and cons of each. Knowing how to make the most out of a balance transfer is key in order to manage your debt responsibly.

How Can You Make the Most Out of Your Balance Transfer?

Making the most out of a balance transfer can be an effective way to manage debt and save money. It’s important to understand how it works, what costs are associated with it, and how you can make the most of your balance transfer.

Strategies for Making the Most Out of Your Balance Transfer

When considering a balance transfer, look for credit cards that offer 0% introductory APR periods on transferred balances. This will allow you to pay off your debt without incurring interest charges during this period.

Additionally, try to find a balance transfer credit card with no annual fee or low fees so that you don’t end up paying more than necessary in order to complete the transfer. Also consider any rewards or benefits offered by the card as these may help offset some of the cost associated with doing a balance transfer.

Tips On Managing Your Debt After Completing Your Balance Transfer:

Once you have completed your balance transfer, create a budget and stick to it. Make sure all payments are made on time and if possible set aside extra funds each month towards paying down your debt faster.

Consider setting up automatic payments from your bank account so that you never miss a payment due date again.

Additionally, keep track of when promotional offers expire so that you know when interest rates may increase on any remaining balances after their expiration date has passed.

One common mistake people make is transferring too much debt onto one credit card, which could result in exceeding their available credit limit or having difficulty making minimum payments each month due to high balances relative to income levels.

Additionally, avoid closing old accounts right away as this could hurt your credit score by reducing overall available credit limits across all accounts while increasing utilization ratios (amount owed/total available).

Finally, watch out for hidden fees such as cash advance fees or late payment penalties which could add additional costs onto already expensive transfers.

Making the most out of a balance transfer can be an effective way to manage debt and save money, but it’s important to do your research and know all the details before committing.

FAQs in Relation to How Do Balance Transfers Work

Do balance transfers hurt your credit?

Balance transfers can affect your credit score, but it depends on how you manage them. If done correctly, balance transfers can be a great way to consolidate debt and save money in the long run.

However, if not managed properly they could result in higher interest rates or late payments which would negatively impact your credit score. It’s important to make sure that you pay off the balance within the promotional period and keep track of any fees associated with the transfer.

What are the negatives of a balance transfer?

Balance transfers can be a great way to save money on interest payments, but there are some potential negatives to consider. First, balance transfers often come with fees that can add up quickly and reduce the savings you would otherwise receive.

Additionally, if you don’t pay off your balance in full before the promotional period ends, you may be subject to high interest rates that could make it difficult or impossible for you to pay off your debt.

Finally, depending on how much debt you have and what kind of credit score you have, it might not even be possible for you to qualify for a balance transfer at all.

Is it a good idea to balance transfer?

Balancing transfer can be a great way to save money and pay off debt faster. It involves transferring the balance of one credit card to another with a lower interest rate, allowing you to pay less in interest over time.

However, it’s important to consider all the details before making this decision as there may be fees associated with balance transfers and some cards may have higher rates after an introductory period ends.

Ultimately, if done correctly, balancing transfer can help you save money and get out of debt quicker – but make sure you do your research first.

When should you not do a balance transfer?

Balance transfers should not be done if you are unable to pay off the balance within the promotional period. This is because after the promotional period ends, interest rates can increase significantly and leave you with a much higher balance than when you started.

Additionally, many credit cards charge fees for balance transfers that can add up quickly if not paid off in time. It’s important to consider all of these factors before making any decisions about transferring balances.

The Bottom Line

And now you know how to do a balance transfer!

If you use them wisely, they can be a great tool to get out of debt and save money on interest payments. The rules of what types of debt you can transfer to your card — and how much of debt you can transfer — varies based by credit card issuer.

The one constant, however, is that you won’t be able to transfer more debt than the credit line available to you.

If you’re thinking of opening a credit card with low introductory APR, be sure your credit health is in a relatively good place, or you may find that your new card only offers a $1,000 credit line.

That’s not much help if you’re trying to consolidate credit card balances or relieve yourself of draconian interest fees on a large chunk of debt.

Your money deserves more than a soundbyte.

Get straightforward advice on managing money well.

Most financial content is either an echo chamber for the "Already Rich" or a torrent of dubious advice designed only to profit its creators. For nearly 20 years, we've been on a mission to help our readers acheive their financial goals with no judgement, no jargon, and no get-rich-quick BS. Join us today.

Aweber pixel