How Credit Card Balance Transfers Work

Reduce debt faster with a credit card balance transfer.

A credit card balance-transfer program is a way for a credit card company to win your business by getting you to transfer the balance of one or more of your existing cards to its credit card brand. As an incentive, the company offers you a lower annual percentage rate than you’re currently paying, often with a 0% APR for a promotional period. Here’s an overview — ranging from how to initiate a balance transfer to the fees involved — of balance-transfer credit cards.

Balance Transfer Fees

Although you can save money on interest rates, balance transfers typically incur a balance transfer fee ranging from 2 to 5 percent upfront. The amount of money you can transfer depends on your credit score and the terms of the balance transfer card.

Before you commit to an offer, calculate what you’ll pay for the added fee. You’ll only save money if the credit card balance transfer fee is offset by the long-term interest savings.

Learn: 10 Things You Should Never Put on a Credit Card

How a Balance Transfer Affects Your Credit

Even though a balance transfer might help you save money, it might also lower your credit score.

When you apply for credit, the prospective lender reviews your credit history, which results in a hard inquiry. The more hard inquiries your report has, the greater risk you appear to creditors. Hard inquiries have greater impact for people who have few accounts or a brief credit history, according to myFICO.

Another way your credit score might suffer is if you close the original credit card account following the credit card balance transfer. Closing the account will affect your credit utilization ratio — or the amount of credit that you’re using in comparison to the available amount. Consider keeping the initial credit card account open because that’s usually better for your credit score.

Find Out: How Long Do Hard Inquiries Stay on Your Credit Report?

How to Find Good Balance Transfer Credit Cards

Applicants with top-notch credit will qualify for the best credit card offers, so check your credit report and score before starting your search. Look for balance transfer credit cards with longer promotional periods. Federal law requires introductory rates to stay in effect for at least six months, but longer promo periods exist. Look for an offer that will give you the time you need to pay off the balance at the introductory rate.

Calculate your potential savings to find the best balance transfer cards. Some banks, such as Capital One, have online tools where you can easily plug in the balance amount, annual percentage rate and any annual fee to compare offers. Consider the balance transfer fee, annual credit card fees and the interest rate that takes effect after the promo rate.

As you search, look for additional credit card perks. The best balance transfer credit cards offer a promotional rate that’s extended to new purchases, travel rewards, airline miles or cash back rewards.

How to Do a Credit Card Balance Transfer

You might wonder how to transfer a credit card balance.  A transfer occurs through the use of forms or special checks. Or it might be handled directly by the issuer on your behalf. Steps vary, depending on the bank, but here are the basics:

  1. Have your old account number handy, and know the amount you wish to transfer.
  2. Provide this information to the bank issuing the new balance transfer credit card. “You can do this using the paper form that came in the mail, over the phone or even using an online form,” said Jonas Sickler, director of operations at ConsumerSafety.org. “Banks want to make the credit card balance transfer process as easy as possible.”
  3. Allow enough time for balance transfer processing, and continue making your regular payments until the process is complete. Capital One, for example, takes from three to 14 days to complete a credit card balance transfer, depending on how the transfer is initiated.

Be cautious about doing a credit card balance transfer over the phone if you didn’t initiate it. “Reputable banks won’t cold call you about this,” Sickler warned. “If you receive a phone call from a lender asking you to provide your existing bank account information to transfer a balance, hang up and report the incident to both your bank and the Consumer Financial Protection Bureau.”

Are Balance Transfer Credit Cards a Good Idea?

Paying off debt with balance transfer credit cards can save you money by applying more money on principal rather than interest. It’s a form of debt consolidation that can help you pay off balances more quickly.

Before you think about how to do a balance transfer, be sure you’re financially able to make all of the payments on time. Banks have the legal right to rescind the promotional rate if you make a late payment and can do so even during the first six months if you’re more than 60 days late on a payment.

Up Next: Credit Cards 101 — How Credit Cards Work