If you’re considering transferring a credit card balance, a balance transfer can be an effective money-management strategy to help you save. Keep reading to learn the answers to questions like, “What is a balance transfer?” and discover helpful tips on how to transfer a credit card balance effectively.

What is a balance transfer?

A balance transfer involves moving outstanding debt from one credit card to another, typically to take advantage of a significantly lower promotional interest rate. Consumers often open a new credit card account to facilitate this transaction. For instance, transferring your debt to a card with a zero percent introductory APR offer on balance transfers can help you reduce or pay off the debt interest-free during the introductory period.

Lenders may charge a balance transfer fee, which is usually a percentage of the total amount transferred. Some lenders offer no or low fees as introductory offers to attract new customers.

Balance transfers can affect your credit score based on several factors, such as opening a new card and how you manage your balances post-transfer. Constantly opening new cards can lower your credit score. However, transferring your balance to an existing card with a lower interest rate might not impact your score. In some cases, opening a new card with a low APR and reducing your debt can positively impact your credit score.

How a balance transfer works

Every balance transfer process is different, but here are some general steps to follow when working with credit card issuers:

  • Review Your Current Balance and Interest Rate: Evaluate your current financial situation by reviewing your credit card balances and interest rates. This will help you determine the best next step. Look for a card that can accept the amount you want to transfer and offers a lower interest rate than your current card.
  • Apply for a Card: Choose a balance transfer card that fits your financial needs, preferably one with a zero percent introductory APR offer on balance transfers. Remember, same-issuer transfers are generally not allowed.
  • Initiate the Balance Transfer: Whether you’re completing the process online or over the phone, you’ll need to provide information such as the issuer’s name, the amount of debt you have left to pay off, and your account information. Some balance transfers can also be initiated using convenience checks, which are charged against your credit account and can be submitted to a specific person or organization.
  • Wait for the Transfer to Go Through: It can take several days or even weeks for a credit card issuer to approve your balance transfer. During this waiting period, continue making payments on your old card until the transfer is complete. Once approved, the issuer will typically pay off your old account directly, and that old balance, plus any balance transfer fee, will appear on your new account.
  • Pay Down the Balance: After your balance is transferred to your new card, start making on-time, monthly payments on that account.

What to consider when making a balance transfer

The goal of a balance transfer is often to save money rather than spend more. Here are a few considerations to keep in mind to help you achieve your financial goals:

  • Pay Attention to Different APRs: Understand the various APRs associated with the card, including the introductory and regular rates.
  • Know the Terms of the Balance Transfer: Familiarize yourself with the specific terms and conditions, such as the length of the introductory period and any associated fees.
  • Look for Cards That Waive the Balance Transfer Fee: Some cards offer promotions that waive the balance transfer fee, which can save you money upfront.
  • Continue Paying the Balance on Your Other Cards Until the Transfer Goes Through: Ensure you continue making payments on your existing cards to avoid late fees and interest charges until the transfer is complete.
  • Be Cautious When Charging New Purchases to Your Balance Transfer Card: The zero percent intro APR may not apply to new purchases, so be mindful of additional charges.
  • Remember to Make Your Monthly Payments on Time: Consistently making on-time payments is crucial to maintaining good credit and staying on track with your debt repayment plan.

Pros and cons of balance transfers

A balance transfer can be an effective strategy for getting out of debt, but it’s important to be aware of the pros and cons to avoid falling deeper into debt. If you’re considering a balance transfer, here are some advantages and disadvantages to keep in mind:

Pros

  • Consolidate Payments: A balance transfer card can allow you to combine multiple credit card balances into one. This simplifies your finances by reducing multiple payments to a single payment with one due date. Keep in mind that interest will apply to any remaining balance not paid off within the introductory period.
  • Better Terms: If your current credit card has high fees, you might benefit from transferring your balance to a card with more favorable terms.
  • Lower Interest Rate: High-interest rates can be costly. By transferring your balance to a card with a lower interest rate, more of your monthly payment can go towards paying off the principal balance rather than interest charges. If the card offers a long promotional period and you make substantial monthly payments, you could pay off your balance in full.

Cons

  • Fees: Many balance transfers come with fees, typically ranging from 3 to 5 percent of the amount transferred, with a minimum of $5 to $10. Depending on the amount transferred, this fee can be significant. Additionally, the new credit card may have an annual fee.
  • Risk of More Debt: Transferring your balance to a new card can increase your available credit. It’s crucial to spend responsibly; otherwise, you risk accumulating even more debt than you had initially. Having multiple credit cards can lead to more debt if you’re tempted to make new purchases after transferring a balance.
  • Credit Requirements: Most balance transfer credit cards require good to excellent credit scores to qualify.

Ultimately, the success of your balance transfer credit card depends on how you use it and how well-prepared you are for the debt repayment process. Now that you can confidently answer the question “what is a balance transfer?” the next step is deciding if this is the right option for you.