Credit cards are versatile financial tools that can help you build your credit score, earn rewards, manage cash flow, and make secure purchases. However, they also come with the risk of accumulating significant debt.

Fortunately, many credit cards offer a helpful feature to assist you in managing and reducing that debt: a balance transfer.

Discover what a balance transfer is and how it can guide you toward more stable and healthier finances.

What is a balance transfer?

A balance transfer involves moving existing debt from one credit card to another. By transferring a balance from a card with a high APR to one with a lower rate or an introductory 0 percent APR, you can reduce the amount of interest you pay while working to eliminate your debt.

The ideal strategy is to pay off the transferred debt completely within the introductory period.

What is a balance transfer credit card?

A balance transfer credit card offers a 0 percent introductory APR on balance transfers for a specified period. While cards with the longest 0 percent APR periods typically focus solely on this feature, some top rewards credit cards also provide attractive balance transfer offers, though their introductory periods may be shorter.

If your primary goal is to pay off debt without distractions or the temptation of earning rewards, prioritize finding a card with the longest balance transfer period you need and save the rewards for a later time.

How do balance transfers work?

A balance transfer is a strategy to pay down debt by moving it from a high-interest credit card to one with a 0 percent introductory APR on balance transfers. This allows you to pay off the debt without accumulating interest during the promotional period. For instance, if you have a $5,000 debt at a 19.99% APR, you’d pay around $691 in interest over 15 months with monthly payments of approximately $379. However, transferring that debt to a card with a 0 percent intro APR and a 3% balance transfer fee allows you to pay just $344 per month, without accruing additional interest.

Here’s a step-by-step guide to the process:

  • Apply for a Balance Transfer Card: Choose a card with a 0 percent intro APR period that suits your debt repayment needs. Use tools like Bankrate’s balance transfer calculator to compare options. Note that you generally cannot transfer balances between cards from the same issuer; for example, you can’t transfer a balance from one Chase card to another Chase card.
  • Request the Balance Transfer: You may be able to initiate the transfer during the card application process. If approved instantly, you might be prompted to provide details for the transfer. This includes the amount to transfer, the issuer’s name, and your account number.
  • Wait for the Transfer to Complete: Once approved, the transfer process typically takes two weeks or more. During this time, the new card issuer will pay off your existing credit card bill, moving the balance to the new card. Continue making payments on the old account to avoid late fees or penalties. You’ll see the new balance, including any transfer fee, on your new card account.
  • Plan Your Repayment: With the balance on your new card, calculate a repayment plan to pay off as much of the balance as possible before the intro period ends. Include the balance transfer fee in your calculations. Divide the total amount by the number of months in the intro period to determine your required monthly payment.

What types of debt can you transfer to a credit card?

Some balance transfer cards allow you to move not just credit card debt, but also other types of debt such as car loans, student loans, and personal loans. Currently, Chase and American Express are the only major issuers that restrict transfers to credit card debt only.

However, it’s important to consider whether transferring debt makes financial sense. Avoid transferring any debt that you won’t be able to pay off within the 0 percent introductory period if it has a lower interest rate than the balance transfer card’s regular APR. For example, if you have a car loan with a 7 percent interest rate, transferring it to a card with a 29.99 percent regular APR may not be beneficial if you’ll need more time than the promotional period to pay off the debt.

Is a balance transfer a good idea?

You can use a balance transfer to address unexpected debt, such as from emergencies, or to rectify poor budgeting. However, a balance transfer can also be part of a proactive strategy.

For instance, if you’re planning a large home improvement project, you might use a rewards credit card for the purchase and then transfer that balance to a balance transfer credit card. This way, you earn rewards on your significant expense and benefit from an introductory 0 percent APR period, allowing you to pay off the balance interest-free.

To determine if a balance transfer is the right choice for you, consider the following questions:

Do you have a lot of high-interest credit card debt?

Balance transfers are ideal for those looking to eliminate high-interest debt. By transferring your debt to a card with a 0 percent introductory APR, you can save on interest and pay down your balance more quickly.

Do you need time to pay off a recent large purchase?

If you need additional time to pay off a sizable credit card purchase, a balance transfer card can be advantageous. Paying off your balance before the introductory period ends allows you to avoid interest charges that might otherwise accrue.

Would you rather focus on one balance?

If managing multiple balances is overwhelming, consolidating them onto a single card simplifies your payments. This approach can also lead to a lower monthly payment and quicker debt payoff, as you’ll avoid high interest rates.

What happens if you can’t pay off your balance during your introductory period?

If you don’t pay off your transferred balance before the 0 percent APR period ends, interest will begin accruing at the card’s regular APR. You may need to focus on paying off the remaining debt swiftly, negotiate a lower interest rate with your lender, or consider applying for another balance transfer card.

Are you ready to commit to a debt payoff plan?

A balance transfer card requires commitment. If you find yourself accumulating new debt while paying off old debt, this card might not be the best solution for you.

Would a personal loan work better for your needs?

If your debt exceeds the credit limit of a balance transfer card or if you need a longer repayment term, a personal loan might be a better option. Although personal loans may not offer an interest-free introductory period, they generally come with lower rates compared to credit cards.

In Conclusion

If you’re overwhelmed by high-interest debt, a balance transfer can reduce your interest costs and accelerate your debt repayment. Before applying for a balance transfer card, review your bills to get a clear picture of your debts, including the amounts and creditors. Then, compare top balance transfer credit cards to find one that aligns with your budget and repayment strategy.