What Is a Balance Transfer?

When you transfer a balance, you’re moving outstanding credit card debt from one or more sources to a single credit card. Balance transfer credit cards offer low introductory APRs designed to help you get out of debt faster, but they also charge fees that can be costly if you have a lot of debt to pay off.

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APA Schell, J. (2022, July 18). What Is a Balance Transfer? Annuity.org. Retrieved August 15, 2022, from https://www.annuity.org/personal-finance/credit-cards/what-is-a-balance-transfer/

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Chicago Schell, Jennifer. "What Is a Balance Transfer?" Annuity.org. Last modified July 18, 2022. https://www.annuity.org/personal-finance/credit-cards/what-is-a-balance-transfer/.

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What Is a Credit Card Balance Transfer and How Do They Work?

A balance transfer involves moving an outstanding balance from one credit card to another. Most credit card companies charge a fee for transferring a balance to the card, usually calculated as either a percentage of the amount you’re transferring or a fixed amount.

Balance transfers are a popular strategy for managing credit card debt. High-interest debt from credit cards can have a significant impact on your personal finances, so getting out of debt as quickly as possible should be a top priority for bettering your credit health.

Transferring your balance enables you to consolidate debt onto a card with a lower interest rate than the card you’re moving the debt from. By moving balances from multiple accounts to a single credit card, you can pay down all the debts with one monthly payment and interest rate.

Balance transfer credit cards offer low or no interest for an introductory period, usually one to two years. This way, you can save money on interest and get out of debt faster. However, in most cases, the low rate is a promotional rate that only lasts for a limited time and increases sharply after the promo period expires.

How Do Balance Transfers Impact Your Credit Score?

Balance transfers have the potential to raise or lower your credit score. How your score is affected depends on your individual circumstances.

Applying for a balance transfer credit card or a traditional credit card with a balance transfer offer creates a hard inquiry on your credit report. A hard inquiry shows up on your report when a lender checks your credit to approve you for a credit line such as a credit card.

Multiple hard inquiries showing up on your report at once can have a detrimental effect on your credit score. This is because lenders see applying for a lot of credit at once as a sign of financial instability. Hard inquiries remain on your credit report for two years, but their impact on your credit score is not as significant as factors like your payment history or outstanding debts.

Additionally, opening a new credit card for a balance transfer lowers the average age of your credit accounts, which can in turn lower your credit score. You can offset this impact by not closing your old account when you open the new one.

Transferring your balance may improve your credit by lowering your credit utilization ratio. This is the ratio of how much of your available credit you are using, and it is an important factor in determining your credit score.

If you transfer the balances of multiple credit cards to a single account, the utilization ratio on those credit cards will drop to 0% on your credit report, lowering your average utilization. And, if you take advantage of the low introductory APR to pay down your debt faster, your utilization will decrease even more‌ with time.

Pros and Cons of Balance Transfers

Transferring your credit card balances can help you tackle your debt faster, but it may not be worth the costly fees or potential damage to your credit. To decide whether a balance transfer is right for you, weigh the pros and cons.

Balance Transfer Pros and Cons
  • Lower introductory interest rates
  • Consolidates debt into a single payment
  • Lowers credit utilization
  • Can help you get out of debt faster
  • Charges fees to transfer balance
  • Can raise interest rates down the road
  • Can hurt credit score
  • Creates potential for even greater debt

Best Cards for Balance Transfer

To get the most out of a balance transfer, you have to look for the right kind of credit card. A good credit card for a balance transfer will have low fees for transferring balances and an introductory 0% APR.

With these features, you can mitigate some of the drawbacks of a balance transfer. Be sure to check the fine print for hidden fees and to find out what your interest rate on the card will be after the introductory period.

Here are a few examples of balance transfer credit cards designed to help consumers pay off debt faster. Rates are current as of July 2022.

Best Balance Transfer Credit Cards
Credit CardBalance Transfer FeeIntro APR on Balance TransfersVariable APR After Introductory Period
Bank of America® Customized Cash Rewards3% of transfer amount (minimum $10)0% APR for 15 billing cycles14.24% to 24.24%
Citi Simplicity® Card5% of transfer amount (minimum $5)0% APR for 21 months16.24% to 26.24%
Discover it® Balance Transfer3% of transfer amount (no minimum)0% APR for 15 months13.49% to 24.49%
U.S. Bank Visa® Platinum Card3% of transfer amount (minimum $5)0% APR for 20 billing cycles15.99% to 25.99%

How To Do a Credit Card Balance Transfer

Once you’ve decided to transfer your balance, here are the steps you must take to do so properly:

  1. Choose your balance transfer credit card.

    Look for a card with low balance transfer fees and a 0% APR introductory rate for a length of time that you expect to be able to pay off your debt within.

  2. Find out the credit limit and fees.

    Research to find out how high the card’s credit limit is. If the limit is higher than your total debt, you will only be able to transfer a portion of your debt. Also double-check the terms and conditions for any hidden clauses before you apply.

  3. Complete the card application.

    Once you apply for the credit card, expect to find out if you’ve been approved and be able to initiate your balance transfer in a matter of weeks.

  4. Transfer your balances to the new card.

    It’s wise to transfer your balances as soon as you receive your new card. For many credit cards, the low APR and discounted fees only apply to balance transfers made in the first few weeks or months of account opening.

  5. Pay off debts with the balance transfer card.

    When the balance transfer is complete, calculate how much you’ll have to pay toward the debt each month to pay off your balance before the 0% APR period ends. Try to pay as close to that amount each month to get the most out of the balance transfer offer.

Best Alternative to Credit Card Balance Transfers

A balance transfer may be the right choice for you if you can qualify for a card with 0% APR and you feel confident that you’ll be able to pay off the balance before that introductory rate expires. But for many consumers, a balance transfer isn’t worth the fees and higher interest rates that kick in further down the line.

If you have a large amount of debt that will take more than a year or so to pay off, consider a personal loan instead of a balance transfer credit card. Personal loans have fixed interest rates that may be lower than the APR of your current credit card.

Like credit cards, the terms and features of personal loans can vary greatly depending on the provider. Some lenders charge an origination fee similar to the balance transfer fee on a credit card. Many lenders also have a minimum amount for personal loans, and may not be ideal for paying off smaller debts.

You can choose the monthly payment you’ll make and the terms of the personal loan, which is how long it will take to pay it off. This allows you to get out of debt on your own schedule, rather than rushing to pay down as much as you can before a balance transfer credit card’s interest goes up.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: July 18, 2022

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