If you’ve been considering a balance transfer and you’re not quite sure what it entails, fear not! We’re here to answer all of your questions. It may be a great way to save money, especially on interest. The best balance transfer credit cards offer extremely low or 0% interest rates, little to no balance transfer fees, and an extended period of time to pay off debt.
What is a balance transfer?
It’s when you use a credit card to pay off other credit card or personal loan balances. Typically, balance transfer credit cards have an extended 0% introductory APR period (sometimes up to 18 months), so you can pay off your debt without incurring interest costs.
Are credit card balance transfers a good idea?
For certain situations, yes, they are. If you have a large amount of debt with a high-interest rate or several smaller debts, then a transfer may be a good idea. The goal is to give yourself extra time to pay off large or multiple balances without paying more in interest. The key is to ensure you can make the monthly payments before the introductory period ends.
Here’s an example: You have $3,000 on a credit card with a 20% interest rate. If you paid $250 a month toward that balance, it would take you 15 months to pay it off, and you’d pay an extra $372.97 in total interest. You can see how it works by using The Simple Dollar’s Debt Payoff Calculator.
However, if you transferred that $3,000 amount to a balance transfer credit card with 0% introductory interest for 15 months and made the same $250 a month payment, you could pay the full amount off in one year without paying any interest. Or, you could take the full 15 months and pay $200 a month to pay it off interest-free.
Are balance transfers bad for your credit?
It depends, but in general, no. If you’ve opened a lot of credit cards recently, then another hard inquiry to open a balance transfer card may ding your score temporarily. However, by adding another card with a higher credit limit, you’re improving your credit utilization.
For instance, if you have $3,000 on a $4,000 credit limit card, then your credit utilization is 75% — much higher than the recommended 30% or less. However, if you open a balance transfer card with a $5,000 credit limit, then your total credit limit is now $9,000, bringing your credit utilization down to 34%. As you pay off the debt, your credit score will continue to improve as well.
How do you transfer a balance from one credit card to another?
Once you’ve done your research and been approved for a new credit card, it’s time to start transferring balances. First, gather the account information for the card balance you want to transfer. Next, call the customer service center for your new balance transfer credit card. Let them know you’d like to do a balance transfer. They’ll contact your other account and handle the logistics of transferring the balance to your new card.
How long does it take to transfer a balance?
The length of time varies; however, in general, it takes a week or two to complete. If the balance is being transferred via check, then it may take longer. Another timeframe you’ll want to be mindful of is the window period for fee-free transfers, if offered by your card. Some cards offer $0 introductory transfer fees for 60 days, along with 0% introductory APR.
What is a balance transfer fee on a credit card?
It’s a fee you are charged by your new credit card to move a balance from one card to another. This fee is typically a dollar amount or a percentage, whichever is greater (for instance, $5 or 5%, whichever is greater). These fees are something you’ll want to keep an eye on because in some cases, they may cost more than your interest costs.
For instance, in the example above, we had $3,000 we wanted to transfer. With a 5% balance transfer fee, you’ll end up paying $150 in one-time fees. However, we would also be paying $372.97 in total interest if we didn’t transfer, so even with the balance transfer fee, we’re still coming out on top. Some of the best balance transfer credit cards offer $0 introductory transfer fees for up to 60 days, which would allow you to save on interest and fees.
Can you use a balance transfer to pay off a personal loan?
Yes, you can pay off a personal loan through a balance transfer. Similar to credit cards, transferring a personal loan debt to a balance transfer credit card could be a good way to reduce interest costs and extend the period of time you have to pay. First, make sure the balance transfer credit card accepts transfers of personal loans. Next, you’ll want to contact their customer service center to begin the balance transfer request.
Can I save on both balance transfers and purchases?
Yes, but it depends on the card. Some cards only extend their 0% introductory APR to balance transfers, while others will also offer it on new purchases.
How do I pick the best balance transfer credit card for me?
To pick the best card for you, you’ll need to compare balance transfer credit cards based on their features and your financial goals. For instance, if you want the longest period of 0% introductory APR, look for cards with 15- to 18-month introductory periods. The Discover it® Balance Transfer gives you 0% intro APR for 18 months on balance transfers and then the ongoing APR of 14.24% – 25.24% Variable APR. Or, if you want a card that offers $0 introductory balance transfer fees (for transfers made during the first 60 days of account opening, then 5% with a minimum of $5), consider the Chase Slate® (currently unavailable) card.
The bottom line
If you’ve done the math and figured out the potential savings on interest and fees, then it may be time to apply. You can explore the best balance transfer credit cards as recommended by The Simple Dollar, and also find other resources to help you out along the way from our experts: