Is a Credit Card Balance Transfer Right for You?

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A balance transfer — moving your debt from one credit card to another one, usually with lower interest fees — can be a saving grace for many Americans. But like every aspect of having and handling credit cards, whether it’s right or not for you depends on your financial situation, as well as on being meticulous and disciplined.

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A new GOBankingRates survey found that 15% of Americans indeed use their credit card to pay off their credit cards. While the age bracket using this tactic the most is the 35-to-44 age group at 20%, and the one using it the least is the 65 and over age group at 13%, the practice is used across the generational board, the survey finds.

Here’s what you need to know about balance transfers to decide if it’s the right move for your debt.

How Does It Work?

A balance transfer is exactly this: moving your credit card balance to a new card with a low or 0% interest rate. Yes, the amount you owe remains the same, but you will save — for a limited time — on interest payments. In turn, this could help you pay your balance faster and plan better. There may be fees tied to the balance transfer, but depending on how much those are and how much you owe, they could be cheaper than keeping your debt on your current card.

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“Often, the new card is offering a special promotional interest of 0% for a temporary period of time, usually 12-18 months. This allows the cardholder to repay debt at 0% rather than the usual 20%+ interest rate cards charge,” said Vadim Verdyan, head of advice operations at Albert.

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When Is a Good Time To Consider Doing a Balance Transfer?

Balance transfer cards may be a great option for someone who wants to pay off a large amount of debt quickly and save money on interest payments while doing it.

“If you have a credit card balance of $5,000 with 0% interest and you’re paying $300 a month towards it, you’ll pay it off in just under 17 months with no additional interest,” Verdyan said. “If the interest rate were 24% in that same example, it would take you about 21 months to pay that $5,000 balance, and you’d end up paying $1,300 in interest on top of that.”

According to Verdyan, consumers should think about a balance transfer if they meet several criteria.

First, if you are paying monthly interest charges and cannot pay your credit card down in full each month, it might be a good option. Then, consider it if your credit score is north of 700, and your overall credit card debt is less than $5,000, as balance transfer cards generally have a limit of $5,000-$6,000 or less, he said.

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Another item to consider, he said, is if “they are disciplined enough not to spend more on the initial card they transferred their debt from after the limit opens up again.”

A balance transfer could also be a good option if you make an expensive purchase with a credit card and only make the minimum payments because you could be paying it off for years.

“A balance transfer could help you save money and eliminate your debt faster but it’s important to assess your personal financial circumstances to see if this option makes sense for you,” said Bobbi Rebell, personal finance expert at Tally.

Are There Any Drawbacks?

A balance transfer can save you money by helping consolidate your debt and avoiding interest fees for a certain amount of time. However, it’s important to note that there’s a risk of being unable to pay down the debt in the introductory period.

“The 0% introductory period is usually 12-18 months. If you can’t pay off the card within that time frame, the balance transfer card becomes a normal credit card with interest rates that can range from 18%-27%,” Verdyan said. “Any unpaid balance at the end of this period will begin to accrue interest at the card’s standard interest rate.”

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And several experts echo this sentiment. The main risk is if you end up using one of these cards like a shell game and just moving money around without making meaningful progress, said Ted Rossman, senior industry analyst at CreditCards.com.

“Frankly, this is why companies offer these deals. They’re loss leaders. They get you in the door with a 0% rate and they’re banking on a lot of people not paying the full amount and then the interest rate goes way up once the term expires,” said Rossman, adding that if you can pay in full by the time the promo expires, you can save a ton of money in interest.

Rossman recommends that the best way to use one of these cards is to avoid making any new purchases.

“Divide what you owe by the number of months in your 0% term and try to stick to that level of payment plan. Citi said during an earnings call last year that about half of these balance transfers are not paid in full by the time the clock runs out,” he added.  

An additional point to consider is to be mindful of the upfront transfer fees, which are typically between 3% to 5%, Rossman said, adding that these can be well worth it given the lengthy interest-free terms.

Finally, an additional card means additional things to keep track of, such as payment due dates, as well as the possibility of racking up more debt.

“It’s not uncommon to see people transfer their previous balance and continue their current spending habits. This can result in them building the debt back up on their first card before paying off the second, leaving them with even more debt than they began with,” Verdyan said. “It’s important to keep in mind that getting a balance transfer card to help pay down debt doesn’t solve the core problem of overspending.”

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Methodology: GOBankingRates surveyed 1,003 Americans aged 18 and older from across the country between September 19 and September 20, 2022, asking twelve different questions: (1) Which of the following is the most important to you when it comes to picking a new Credit Card?; (2) How do you handle your Credit Card bill each month?; (3) Do you know your Credit Score?; (4) What age did you get your first credit card?; (5) What is your primary purpose for using your credit card(s)?; (6) Do any of the following statements apply to you? (Select all that apply); (7) Which credit card fees do/would you hate the most?; (8) How many Credit Cards do you own?; (9) What is your total current Credit Card debt?; (10) How long do you think it will take you to pay off your Credit Card debt?; (11) Have you ever hit the credit limit on your credit card?; and (12) Have you ever charged any of the following to your Credit Card? Select all that apply:. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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