What Is a Balance Transfer? Everything You Need to Know

Hands choosing a credit card stock photo
kiattisakch / iStock.com

Credit card debt can be a serious drain on your finances, especially if you’re paying a high interest rate on your balance. A balance transfer can reduce your interest rate, lower your payments and help you pay the debt off sooner.

What Is a Balance Transfer?

A balance transfer occurs when you move the balance of one or more credits cards onto a different card that has a lower annual percentage rate. The money you save on interest can go toward paying down the balance.

How Do I Transfer a Balance?

If you’ve considered the benefits and risks and decided that a balance transfer will work in your favor, you can do it fairly quickly with a little planning and patience. Just follow these steps:

  1. Choose a balance transfer card. Consider the length of the introductory APR offer, the regular APR, fees — including the balance transfer fee — and the credit limit.
  2. Apply for your chosen card. You’ll need to provide personal and financial information, like your name, Social Security number, income information and monthly expenses.
  3. Fill in the balance transfer information. During the application process, make sure you fill in which credit card you want to pay off, the account number and the total amount you want to transfer to your new card.
  4. Wait for approval. It can take 10 days or more for the approval and balance transfer to be complete. Keep making payments on your old card in the meantime to protect your credit score and avoid late fees.

Keep monitoring your old credit card until you receive a statement that reflects your paid-off balance and shows that your whole credit limit is available.

How Does a Balance Transfer Work?

To see how a balance transfer works, consider the following example:

  • You have a credit card with a $3,600 balance and 16% APR.
  • You’re currently paying $300 per month — well above the minimum payment.

At this rate, it would take 14 months to pay your balance in full, and you’d pay $349 in interest during that time.

If you were to transfer the balance to a 0% APR card with a 3% balance transfer fee and you increase your payments to $309, you’d pay off the debt in 12 months and save $241.

Get Credit Card Perks

Good To Know

Balance transfer card issuers are typically looking for credit scores of 670 or higher. If you can’t qualify on your own, consider asking a creditworthy family member to cosign your application or serve as a joint applicant.

Is It a Good Idea To Do a Balance Transfer?

A balance transfer consolidates debt while giving you some breathing room on the amount of interest you’d be paying on the principal — ideally, you’ll transfer your balances to a 0% APR card. That benefit, if nothing else, might be reason enough to execute a balance transfer if you’re working with high-interest debt or multiple sources of debt.

Consider APR and Fees

That said, a balance transfer could set you back if you’re not careful. Credit cards rarely offer an indefinite 0% percent APR. Most credit cards switch to a variable APR after a year or so, and in some cases, the APR could be higher than what you’re used to paying on one card. There are also balance transfer fees to consider, which are typically around 3% of the balance you’re transferring, but can range from 2%-5%.

Use Credit Cards Carefully

A balance transfer can also cost you more in the long run if you accumulate new debt on the credit cards from which you transferred balances. Using the original cards judiciously and repaying the balances each month is imperative to reaping any benefit from the balance transfer.

Do Balance Transfers Hurt Your Credit Score?

The actual act of transferring debt does not affect your score, meaning it’s not a factor in determining whether you lose or gain points. But the other factors involved in a balance transfer, such as opening up a new credit card account to facilitate the transfer and increasing your total available credit, do affect your credit score.

Get Credit Card Perks

Your credit score is determined in part by the number of accounts open, as well as your balance-to-limit ratio, or utilization rate. By keeping your old accounts and opening a new one with the same amount of debt, you’re improving your open credit lines and your credit utilization.

On the other hand, your score could take a small hit from the credit inquiry resulting from your application, and a new account could reduce the average age of your credit history, which can also have a negative impact on your credit score.

Attack Your Credit Card Debt

Look at your budget and create a payment plan that will allow you to attack your debt at a more aggressive pace. You might even want to set a goal of paying off the balance before your introductory rate comes to an end.

It’s also a good time to review spending habits to avoid accumulating new debt after your transferred balances have been repaid.

Daria Uhlig, Sean Dennison and Cynthia Measom contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


See Today's Best
Banking Offers