A zero-interest balance transfer can be a financial lifeline to help you escape a modest credit card debt. But for some, transferring a balance may actually make your debt situation worse.
Here’s how to know if you should apply for a credit card balance transfer or not.
What Is a Balance Transfer?
Put simply, a balance transfer is relocating your debt from one card to another. You’re effectively paying off a credit card with a credit card.
So what’s the point? After all, you’ve still got the same amount of debt following a balance transfer.
There are actually a few reasons:
- A strategic balance transfer can help you pay off modest credit card debt. For example, you can move your debt from a high-interest credit card to one with lower interest.
- You could score a card that has an introductory offer of 0% interest on balance transfers.
- You can use a balance transfer to consolidate debt across multiple cards.
But if you’re not careful with your credit card spending, or if you don’t pay off the transfer before the 0% APR promotion ends, then transferring your balance could actually grow your debt.
Read more: What Is a Balance Transfer Credit Card?
Pros and Cons of Balance Transfers
Pro: You Can Save Big on Interest Payments
If you’ve got a chunk of debt on a card that charges sky-high interest rates, you can save considerable money by transferring that debt to a different card with a lower interest rate.
Some cards also come with a 0% introductory APR. By transferring a balance to one of these cards, you’ll have a respite (often 12 months or more) from incurring interest. That means every dollar you pay goes toward the principle amount you owe.
Pro: You Can Consolidate Debt
If you’ve got debt spread across more than one card, a balance transfer can be an easy way to consolidate your debt.
By transferring your balance to one card, you’ll only have one monthly payment, which can make your payments more digestible — and even help you to put more of your money toward the amount you owe.
Con: There Are Usually Fees
Balance transfers are usually (but not always) attached to a fee of up to 5%.
That means if, for example, you transfer a balance of $5,000 to your card, then you’ll be charged a fee of $250 for the privilege.
Read more: How Do Credit Card Balance Transfers Work?
Con: It’s Easy to Increase Your Debt if You’re Not Careful
After you consolidate your debt, you might get caught up with all the available credit you have on your previous cards.
Similarly, if the card you’ve transferred your balance to comes with a 0% into APR, you can slip into the mindset that you can afford to live above your means for a while, since you won’t pay any interest.
This could turn your situation into something far worse.
So, Should I Transfer My Credit Card Balance?
If you’re in a good place financially (stable job, good credit score, modest credit card balances, etc.), transferring a balance that’s currently on a high-APR credit card can save you serious money. That means you’ll be able to pay off your balance faster.
If you’re NOT in a good place financially, say, with maxed-out credit cards and late payments on your record, a balance transfer isn’t for you.
There are a couple reasons for this.
First, credit cards that offer balance transfers require good credit. You don’t need great credit, but you’ll at least need a streak of good habits on your score. And if your debt is too large, a balance transfer can make things worse.
Balance transfers provide temporary relief from high interest rates, but they can exacerbate the problem by giving you more credit that you’ll end up using when money gets tight.
Before you transfer a balance, ask yourself the following questions to figure out if it’s the right move for you.
- Are you committed to getting out of credit card debt for good? Is there a chance you’ll transfer the balance and then start using the old credit card again?
- Is the balance transfer fee worth it? Make sure you’ll save money in the long run.
- Do you have good enough credit to be approved for a balance transfer card in the first place?
- Is your credit sufficient to get you approved for the card with a sizable credit line? Getting approved for a balance transfer card with a $1,000 credit line probably won’t help you much.
Banks generally won’t extend new credit to you if you’re maxed out or very close to the limits on all of your credit cards. It makes you appear as too big of a risk — i.e., living above your means. And late payments are the nail in your credit score’s coffin.
A rule of thumb is that you’ll stand the best chance of getting approved for a balance transfer credit card if your credit score is at least 700.
Read more: How Credit Works: Understand the Credit History Reporting System
What to Look For in a Balance Transfer Credit Card
OK. You’ve decided that a balance transfer fits your situation. The next step is finding the perfect credit card.
There are a handful of attributes you should look for in a balance transfer credit card:
- 0% intro APR — Many cards offer a window to pay your balance transfer without incurring interest. The longer this 0% window, the less stressed you’ll be about paying it off in time.
- Low regular APR — If you know you won’t be able to pay off your balance before your 0% intro APR window closes, you’ll want the lowest possible ongoing interest rates. Read a card’s terms and conditions to see what you can expect to pay.
- No balance transfer fee — Most cards charge a fee upwards of 5% to transfer a balance. If you can find a card that waives this fee, you could save hundreds of dollars right out of the gate.
- Sign-up bonus — Balance transfer credit cards sometimes come with a cash sign-up bonus that can reward you $100+ for meeting a modest spending requirement within the first few months of opening your card. You can put this money directly toward paying off your balance.
We’ve also written an article on the best balance transfer credit cards to help you narrow your search quickly.
Are Balance Transfers Worth It?
Again, you can expect to pay a balance transfer fee of between 3% and 5% of the transferred amount. You need to make sure you’ll save more than you spend with a balance transfer.
Here’s an example:
If you’ll spend six months paying a balance on a credit card that charges 15% APR, then a 0% intro APR with a 5% fee makes sense. Of course, the actual break-even point depends on your actual APR and your monthly payments.
If, however, you could repay the debt in less than six months, you might not actually save anything with the 0% balance transfer.
So, are balance transfers worth it for you? To better help you understand, we’ve crafted an interactive calculator. Simply input the details of you own situation into each field, and you can instantly see if it makes sense to open a balance transfer credit card.
There are a few more important details to consider before pulling the trigger on a balance transfer. You’ll avoid unpleasant surprises by preparing for the following scenarios:
You May Not Be Able to Transfer Your Entire Balance
Although credit card applications will give you space to list multiple balances that you’d like to transfer, they don’t guarantee that they’ll transfer all of them. The bank will give you whatever credit limit they decide you should have, and it may be less than the balance(s) you’d like to transfer.
The balance transfer will still go through, but the new card will only pay off some of your old balance, not all of it. If this happens, make minimum payments on the new credit card while you pay off the old card’s balance as quickly as possible.
Transfer Your Balance Soon
Read a card’s terms and conditions carefully to determine how long you have to transfer balances to take advantage of the introductory rate. Some cards may require you do it at the time of your application submission, while others may give you several days or an entire billing period.
The Bottom Line
Balance transfers work to help you alleviate a modest amount of debt in a few ways:
- You can consolidate debt across multiple cards to one card, thus lowering the amount you spend on “minimum payments” each month.
- You can move your debt from a credit card that charges exorbitant interest rates to a card with lower interest rates — sometimes with 0% intro APR for several months.
There can be adverse consequences from performing a balance transfer, such as fees that range from 3% to 5% of the transferred amount. But if you’re committed to getting out of debt (and staying out!), the pros usually outweigh the cons.