What Is A Balance Transfer?

Financial crises often force borrowing as a means of survival. As debt grows and interest charges pile up, you may fall behind making you less likely to qualify to borrow additional funds.

It becomes the financial equivalent of what airplane pilots call a graveyard spiral—a downward turn that worsens as it progresses. In other words: Not staying on top of financial health day to day, and especially in a crisis, can often lead to a dire shortage of financial options.

If your credit score hasn’t yet plummeted, there may be a stopgap option: a balance transfer. Balance transfers mitigate high-interest payments and provide more time to pay down debts.

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What Is a Balance Transfer?

The name is relatively self-explanatory: A balance transfer moves a balance from one account to another account or card, ideally to take advantage of a lower or 0% APR.

No interest rate? What? Don’t get too excited; there’s usually a catch. The rate is an introductory rate, so after a promotional period the 0% APR ends and you’ll need to pay the regular APR. There also may be a balance transfer fee, usually 3% to 5% of the amount of your transfer. Although many credit unions charge no balance transfer fees.

Credit cards best suited for balance transfers are cards with introductory 0% APR periods that often span 12 to 18 months, sometimes longer. For those who find themselves chasing minimum payments and watching a balance bounce back with interest charges, a balance transfer card might help.

How Does a Balance Transfer Work?

In simple terms, a balance transfer involves asking a lender to pay off your debt to another lender. Most cost-effective balance transfers involve moving a balance from an existing card with one issuer to a new card to take advantage of a low or 0% introductory APR. In most cases, you cannot transfer a balance from one card to another card with the same card provider.

Typically, this involves paying a balance transfer fee, so it’s only cost effective if the fee costs less than the interest you would pay before the balance is paid in full, on the existing account.

A balance transfer may involve one card issuer paying off another issuer directly at your request or may involve the issuer sending you a check to pay down your other account with. Your issuer’s specific policies may vary depending on how it chooses to handle balance transfer operations.

How To Transfer a Credit Card Balance

The first step in transferring a balance is to acquire a balance transfer card. Applying for a balance transfer card will likely only be successful with a credit score of 670 or greater, but generally speaking, the higher the score the better. Applying for these cards works the same way as applying for any other card: Simply visit the card’s website and use the application portal.

A few cards may allow you to request a transfer in the application process. If not, once approved for a balance transfer card, cardholders will be able to initiate a balance transfer from the new account. A user simply adds information about the card from which they’d like to transfer and submits the request to initiate it. Be aware that transfers can take as many as 21 days to approve and clear, and payments on a previous account will still be required until the balance transfer has cleared.

Read more: How To Do a Balance Transfer

Pro Tip

Make sure you initiate the balance transfer right away. Many introductory APRs must be completed within the specified time frame. Although cards advertise 12 or more months of 0% APR, you often have a much shorter timeframe to start the process—it could be measured in days, not months.

How Many Balance Transfers Can You Do

There is no hard-set limit to the amount of balance transfers you can do. Depending on your card’s terms and conditions, you may be able to transfer balances from multiple cards to one card with a 0% intro APR period. It’s important to note, though, that the total balance you will be able to transfer to this card will be limited by the card’s credit limit. Your credit limit must be sufficient to cover both the balance and the balance transfer fees. Additionally, some lenders may cap the amount of available balance transfers at an amount less than your full credit limit.

If your credit card debt exceeds the credit limit on your 0% intro APR card, there are other options. If you do not pay off a balance transferred to a 0% intro APR card within the promotional period, you could transfer this balance to yet another 0% intro APR card. You can also hold multiple balance transfer cards at the same time.

Exercise extreme caution with both of these options however. If you are still making purchases on your credit cards, your debt could get out of control. You should never take on more debt than you can pay down every month, so if managing multiple cards at once seems daunting, focusing your efforts on paying off one balance on one 0% intro APR card may be the best option.

Pro Tip

Completing multiple balance transfers simultaneously can result in an overwhelming amount of balance transfer fees. Applying for and holding multiple 0% APR cards within a short time period can also result in multiple hard inquiries on your credit report, which can have a negative impact on your credit score. Issuers also view multiple credit card applications within a short period of time as a sign of risk, which may lead to denial.

What Is a Balance Transfer Fee?

Many cards offering balance transfers charge balance transfer fees. These fees are typically calculated as a percentage—often between 3% and 5%—of the total balance transferred. This means a transferred balance of $100 with a 3% balance transfer fee may post to a new account as a new balance of $103.

Balance transfer fees may outweigh the cost of simply carrying a balance until it can be paid down, so it’s important to calculate the costs of both options. Let’s compare carrying a $1,000 balance on a credit card that charges 20% interest to transferring this balance to a 0% APR card that charges a 5% balance transfer fee.

	Current Credit Card	Balance Transfer to 0% Intro APR Card
Current Credit Card Balance	$1,000	$1,000
Credit Card’s Interest Rate	20%	0%
Balance Transfer Fee	N/A	$50
Monthly Payment	$200	$200
Time Period	6 months	5 months
Total Interest Charged	$52.81 interest	N/A
Total Amount Paid	$1,052.81	$1,050.00

As seen in this example, doing a balance transfer could save you a total of $2.81. You would also be able to pay down the balance a month faster, if you consistently make a $200 monthly payment. Remember, if you only make minimum payments toward your balance, it would take much longer to pay off your bill—and you’d be accruing far more in interest charges than the cost of a one-time balance transfer fee.

Pro Tip

The larger your balance is or the longer it will take to fully pay a balance, the more likely it is that a balance transfer saves you money. But don’t let the extra time in your promotional period give you a false sense of security. If you can’t pay your balance by the end of that period, charges will add up quickly.

How To Avoid Balance Transfer Fees

Balance transfer fees are common, and the only way to avoid them is to find the rare credit card that does not charge them. However, cards that don’t charge balance transfer fees may hit you with fees in other places. For example, even though the Navy Federal Credit Union Platinum Credit Card does not charge balance transfer fees, its introductory APR is unusual: 0.99% intro APR on balance transfers for the first 12 months of account opening, followed by a 11.24% - 18.00% variable APR on both purchases and balance transfers. Balance transfers must be completed within 60 days of account opening.

It is possible to find a credit card with 0% introductory APR and no balance transfer fees like the Bellco Blue Diamond Visa Signature® Credit Card which offers a 0% intro APR on purchases and balance transfers for the first twelve months, followed by a regular APR of 16.75% - 21% variable. Balance transfer fee $10 or 4% of the balance transfer amount, whichever is greater applies. Like other credit unions, Bellco requires membership for all card holders, but membership is open to any one by joining one of their affiliate non-profits.

Balance Transfer Pros and Cons

If you couldn’t tell by now, balance transfers can be a powerful tool for eradicating debt, if used carefully. Before making any personal finance decisions, it’s important to consider the pros and cons.

Pros

Save money on interest with a 0% intro APR offer
Pay off your balance faster
Consolidate debt from multiple credit cards to one location

Cons

Balance transfer cards often require strong credit for approval
Standard APR applies to all balances that are not paid in full during the introductory 0% APR period
Balance transfer fees usually apply
Cards without 0% purchase APRs often forfeit their grace period

Dos and Don’ts of Balance Transfers

Do beware the fine print: Not all introductory APRs are created equal.

Do pay attention to the number of months offered at 0% APR and whether the balance transfer must be completed within a specific number of days

Do heed the balance transfer fee and calculate how it will impact your savings.

Do remember that the standard card APR takes effect when the introductory 0% APR period ends. If you fail to pay off your balance before the intro period ends, this is the rate you will be paying.

Don’t let a balance transfer card become a stopgap that kicks your debt down the road, only to enable its vengeful return.

Don’t continue making purchases on your credit card, if possible, when your goal is to pay off debt, especially if your 0% intro APR on balance transfers card doesn’t also offer a 0% intro APR on purchases.

Balance Transfer Cards You Should Consider

We have a comprehensive overview of the best balance transfer cards, but here are a couple of our favorites.