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A balance transfer is a method of paying off all or part of one credit line using another credit line. Moving debt from one account to another can let you take advantage of lower interest rates or get better benefits for using a particular credit card or line of credit.
What is a balance transfer credit card?
A balance transfer credit card is one that lets you move debt from another account onto that card. They aren’t for everyone, but there are a number of reasons why someone would want to do a balance transfer.
Reasons to do a balance transfer
The main reasons people do a balance transfer include:
- To get lower interest rates. Transferring the balance from a high-interest card to a lower-interest card can save you money. Some cards offer zero percent APR for a set amount of time, usually six to 18 months.
- To pay off what you owe faster. Moving your debt to a lower-interest card helps you pay off the debt because you can put more on the principal each month.
- To get better benefits. A card or credit line that offers cash back, airline miles or reward points may be a better deal for you than a credit card without those benefits.
- To consolidate your debt into a single card or credit line instead of juggling multiple payments each month.
- To free up a credit card for emergencies, because you never know when you’ll suddenly need a significant amount of extra money.
How the balance transfer works
You can transfer your debt to an existing credit line or an entirely new account. If you’re opening a new account, you’ll need to provide personal and financial information, such as your Social Security number and employment information. Other things you’ll need specifically for a balance transfer include:
- The account number of your existing card or credit line
- The amount of debt you want to transfer
- The account information for the new card or credit line
In some cases, a credit card company may send you a balance transfer check that you can use to transfer money. Many financial institutions also let you do balance transfers online or over the phone.
Making payments on the card
When you make a balance transfer, you still have to make payments on the new card (you should at least make the minimum payments, if not more). If the new card has a zero percent APR, you avoid interest as long as the APR remains at zero.
Check the regular APR and the terms of the balance transfer, though. Your interest may suddenly go up after a set period of time, such as six months, and you could be stuck paying more than you intended.
Some cards have a high regular APR, so you might be better off keeping your credit card debt where it is if you can’t pay off the entire amount before the regular APR kicks in.
Credit card balance transfer fees
Most credit card transfers come with fees, so factor these into the overall cost. Sometimes these fees offset the benefits of the transfer. You may be able to get fees waived if you’re transferring a large balance, and credit cards sometimes offer no-fee transfers to entice customers into moving debt to that card.
Balance transfer fees typically range between three and five percent of the total amount transferred. This means that if you transfer $1,000, you have to pay $30 to $50 to complete the transfer. If there’s a cap on the fees, it may be a better deal to transfer a large amount of debt at once.
Who can do a balance transfer?
If you have two existing credit lines, you can probably easily transfer your balance from one to the other without a credit check as long as your credit line is large enough to handle the transfer.
If you want to open a new credit card to accommodate a balance transfer, it will require the same credit check as any other credit application. The financial institution that issues the card will check your credit report and credit score before determining whether to give you a line of credit.
If you plan to transfer your balance onto a new card in a few months but don’t have good credit, you should work to improve your credit score before attempting the transfer.
When can you do a balance transfer?
The best time to apply for a balance transfer is usually just after you open a new account. New accounts typically offer temporary grace periods for payments and lower interest rates, so you can take advantage of those with a balance transfer.
If you have existing credit lines and want to move your debt from a high-interest card to a low-interest card, you can do this at any time.
What types of balances can be transferred to a credit card?
With balance transfers, you aren’t limited to only moving credit card debt from one account to another. You can also transfer balances from other kinds of credit lines or loans, including:
- Auto loans
- Personal loans
- Student loans
- Installment loans
Tips for doing a credit card balance transfer
Credit card balance transfers can include a lot of complicated fine print, so reading the agreements beforehand is essential.
Look for the three “zeros”
The best type of balance transfer offer comes with the “three zeros.” Look for these things to get the best deal:
- 0% introductory APR offer on balance transfers
- $0 balance transfer fee
- $0 annual fee
Pay attention to the cardholder agreements
Sometimes, hidden details in cardholder agreements affect your balance transfer terms. Watch out for anything that might trigger a penalty, such as missing a payment or not paying off the entire balance before a certain date. If you trigger a penalty, the account may switch from a zero percent or low APR to a much higher APR.
Also pay attention to the length of the introductory period. If you can’t pay off your debt within that time period, you might be on the hook for penalties or extra fees.
Balance transfers can affect the grace period on new purchases, too. The grace period of your credit card is the period between when the billing cycle ends and when your monthly payment is due. During the grace period, which typically is between 21 and 25 days, you don’t get charged interest on new purchases.
A grace period only applies if you don’t have an existing balance, though. Since a transferred balance counts as an existing balance, you might not want to put new purchases on the same card.
Shop around for the best offer
Balance transfer offers are fairly common, so you should compare options before choosing a new card. Avoid applying for multiple cards in a short time frame because each application puts a hard inquiry on your credit report and could lower your overall credit score.
Consider checking whether you prequalify for a balance transfer offer before applying. You can also call or check online to see if any cards you already have offer balance transfers with a low APR or low fees before getting a new card.
Consider doing a partial transfer
Partial transfers are another option if you can’t transfer the full balance. With a partial transfer, you move part of your debt to a card with better terms while leaving the rest where it is.
Make payments wisely
Create a budget before you complete a balance transfer to ensure you can pay off the entire debt before the introductory period ends. You don’t want to get stuck with the entire amount due six months or a year from now because you only paid the minimum amount each month.
Watch your credit score
And finally, keep an eye on your credit score when you make a balance transfer. Transferring debt to pay it off more quickly is a way to raise your overall credit score, but hard inquiries and missed payments could lower your score, so be careful with your applications and payment schedule.
