Is a Balance Transfer a Good Idea?

If you're trying to get a handle on your credit card balances, you're already taking a smart step by exploring your options. 

Credit card companies don't let you use one credit card to make a payment on another credit card. You could still move debt between cards using a special type of transaction called a balance transfer. It's a strategy that could help you save on interest and make progress toward paying down what you owe. It’s not without risks, though.

Balance transfers aren't free. Each balance transfer transaction comes with a balance transfer fee from the card that accepts the transfer—usually 3% to 5% of the amount transferred.

How a Balance Transfer Could Help You Pay Off Debt

Your card's interest rate and your balance determine how much you pay in interest fees. A lower interest rate means you'll pay less interest on your balance.

If you apply for a balance transfer credit card and qualify for a 0% interest introductory period, you could save on interest during that time. For example, moving a $5,000 balance from a card with a 24% APR to a 0% intro APR card means your payments on that balance go toward the principal instead of interest until the introductory period ends.

When you don't have to pay any interest fees, you could save hundreds of dollars a month, depending on your balance. Put that extra money toward paying down your balance, and you could make serious progress in debt payoff.

Use balance transfer calculators to estimate potential savings

Use an online calculator to find out whether a balance transfer could save you money. A quick online search turns up several balance transfer calculators to help you compare options.

When Credit Card Balance Transfers Don't Help

Although balance transfers may be useful, they're not right for every situation. Here are some situations where a balance transfer card may not help you pay off debt.

You don't qualify for a lower interest rate

First, you'll have to get approved for the card—and you need an interest rate low enough to make it worth the bother (and balance transfer fee). For both, you typically need good credit, which is a FICO Score of 670 or higher.

If your credit report shows missed payments or maxed-out cards, you might not be able to qualify for a better interest rate offer. The fee to move your debt around isn't worth it if you don't save money on interest.

Your credit limit is too low

The next step is getting a credit limit high enough to handle your debt. You may only transfer up to your credit limit, and your balance transfer fee is tacked onto the amount you move, so add that to your calculations.

A low credit limit could mean you may not be able to transfer all of your debts. Even if the credit limit is enough to cover the transfer, moving a large balance to a card with a relatively low limit creates high credit utilization on that card, which could lower your credit scores.

You still owe a balance when the offer expires

Introductory offers are temporary. When the offer expires, your interest rate goes up to the standard rate, which is typically over 20%. Any balance you haven't paid off will start accruing interest at that higher rate.

You keep spending on your cards

A balance transfer only helps if you stop adding new charges to the accounts involved. If you keep using the old card, or run up new charges on the balance transfer card, you could end up with more debt than you started with instead of less.

How a Balance Transfer Could Affect Your Credit

A balance transfer could affect your credit in more than one way. 

Potential negative impacts

Applying for a new card typically triggers a hard inquiry, which typically causes you to lose a few points. You’ll regain those points over the next 12 months, and the inquiry itself stays on your credit report for two years. 

Applying for several new cards in a short period could compound the effect of multiple hard inquiries, so limit new credit applications while you're planning a balance transfer. 

Closing the account you transferred from could shorten your credit history. Credit age is a factor in credit scoring.

Potential positive impacts

Moving a balance to a card with a higher limit could lower your credit utilization, since utilization compares your balances to your total available credit. If you add a new credit card but your balance stays the same or goes down, the percentage of your available credit in use goes down, and that’s generally a good thing.

The lower your credit utilization ratio, the better. Keep it as low as possible and pay your bills on time to build and maintain a good FICO Score.

Your credit profile is yours alone, and your unique combination of factors determines what happens to your score.

Freedom Debt Relief is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit. 

Choosing the Right Balance Transfer Card

If a balance transfer makes sense for your situation, review these card features before you apply.

• Introductory period length. Find a 0% or low APR offer that lasts long enough to pay off your balance. Many offers last nine to 21 months, and a longer window gives you more time to pay down principal before interest starts.

• Regular APR after the offer ends. Check the standard APR that applies once the introductory period is over. Any balance still on the card at that point starts accruing interest at this rate.

• Balance transfer fee. Most cards charge 3% to 5% of the amount you transfer. Factor this fee into your math so the transfer still makes sense after the cost.

• Credit limit. Confirm the new card's credit limit fits the balance you want to move. Some issuers also cap how much of a balance you're allowed to transfer, even if your limit is higher.

How to Do a Balance Transfer

Once you've chosen a card, a balance transfer typically follows the same basic process.

• Compare your current balances and interest rates. Note how much you owe on each card and the interest rate you're paying.

• Apply for a balance transfer card. Choose a card with a strong introductory APR offer based on what you compared above.

• Request the transfer. Provide your old account details to the new card issuer, either during the application or shortly after approval.

• Confirm the transfer. Check both accounts to confirm the old balance is paid off and the new balance reflects the transfer. This may take anywhere from a few days to a few weeks. Keep making payments on the old card until you confirm that the balance has been transferred.

• Set up a repayment plan. Divide your balance by the number of months in the introductory period so you know how much to pay each month to reach zero before the standard rate applies.

Alternatives to Balance Transfers for Managing Debt

You have more options than just balance transfers to deal with your debt. Consider some of these alternatives:

• Debt settlement. With debt settlement, you ask a creditor to accept less than you owe and forgive the rest. Creditors might be willing to work with you if you have a financial hardship and can’t afford to fully repay your debt. You could negotiate on your own or hire a professional debt settlement company. 

Debt settlement may negatively impact your credit.

• Personal installment loan. Installment loans tend to have lower interest rates than regular credit cards. Approval is often possible with fair credit, which could make personal loans easier to get than balance transfer cards. You may also qualify for a larger loan, which could make debt consolidation possible.

• Debt management plan (DMP). A debt management plan (DMP) is a structured consolidation program offered by nonprofit credit counseling agencies. These plans typically work best if you can afford your debt but need help setting up a repayment plan.

• Chapter 7 bankruptcy. If you qualify, Chapter 7 bankruptcy, also called a liquidation bankruptcy, could help get rid of your unsecured debt. You'll need to meet some eligibility criteria, and only eligible unsecured debts can be forgiven through bankruptcy.

Balancing the Pros and Cons of Transfers

Whether a balance transfer is a good idea depends on your personal circumstances. If you qualify for an intro APR balance transfer offer, you're able to pay off the balance before the end of the introductory period, and you don’t struggle with overspending on credit cards, it could make sense. If a balance transfer isn't the right fit, you may want to compare other debt relief options to find one that fits your situation.