What is a Balance Transfer Credit Card?

A balance transfer allows you to move an existing debt from one credit card to another so you can potentially take advantage of a lower interest rate.

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Key Takeaways

  • Use balance transfers strategically by transferring high-interest debt to a card with a lower or 0% introductory rate, ensuring it aligns with your repayment capabilities.
  • Pay close attention to post-promotional period interest rates and fees; unfavorable terms can diminish the benefits gained during the introductory period.
  • A balance transfer may be a good idea for if you can repay the transferred balance within the promotional period and avoid additional debt on the new card.

When you have high-interest credit card debt, making monthly payments can feel a lot like chipping away at a mountain with a hammer and chisel. If you’re paying the minimum each month, most of your money likely goes to the interest, meaning it can take years to make notable progress on the principal—the money you borrowed in the first place.

Enter the debt-consolidation game changer: the balance transfer.

Balance transfers can help you consolidate multiple debts onto a single card, simplify repayment, and save you money on interest charges. However, you’ll want to be mindful of any associated fees, the duration of promotional interest rates, and how the transfer might impact your overall financial situation. Let’s dive in.


What is a Balance Transfer?

A balance transfer is a financial transaction where you move an existing debt from one credit card to another. Typically, this is done to take advantage of a new credit card’s lower interest rate, especially during promotional periods. By transferring the balance, you aim to reduce the overall cost of carrying credit card debt and potentially pay it off more quickly.

Balance Transfer Example:

If you’re carrying a balance of $5,000 on a credit card with a high 22.99% Annual Percentage Rate (APR) and paying $150 per month, over $95 is going straight to interest, with only $54.21 reaching the principal. It will take you around 54 months to pay the credit card off—that’s four and a half years—and you’ll rack up over $3,000 in interest during that time. In total, you’ll pay $8,045, even though you only first borrowed $5,000.

Transferring this balance to a card with a lower rate means more of your money will go to the principal, so you can pay off your debt faster. If you move that balance to a credit card with a lower APR of 12.99%, you will essentially flip your payment, so almost $96 goes to the principal and $54.13 to interest. That can cut a year off your estimated payoff time, even if you’re still contributing the same amount each month. Plus, you’ll only pay around $1,200 in interest, saving you an additional $1,800.

How do Balance Transfers Work?

Balance transfers involve moving existing credit card debt from one card to another, usually with the aim of securing a lower interest rate. Here's a step-by-step breakdown of how the process typically works:

  1. Apply for a Balance Transfer Credit Card: Look for credit cards specifically designed for balance transfers. These cards often come with promotional periods offering low or even 0% interest rates on transferred balances.
  2. Approval and Credit Limit: Once approved, the new credit card provider sets a credit limit, and you can transfer a portion or the full amount of your existing credit card debt to the new card.
  3. Transfer Process: Contact your new credit card company to initiate the transfer. This may involve providing account details and authorizing the transfer.
  4. Promotional Period: Take advantage of any promotional periods with lower interest rates. These periods are typically limited, so it's crucial to pay off the transferred balance within this timeframe.
  5. Repayment: Focus on paying off the transferred balance before the promotional period ends. After this period, the interest rate may increase, potentially eroding the benefits gained from the transfer.
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How to Choose a Balance Transfer Credit Card

Selecting the right balance transfer credit card requires careful consideration. Here are some key factors to keep in mind:

  • Introductory Period and Interest Rate: Look for cards with longer promotional periods and lower introductory interest rates. This will give you more time to pay off the transferred balance without accruing high-interest charges.
  • Balance Transfer Fees: Consider the balance transfer fees associated with the card. While some cards offer low or no fees during promotional periods, others may charge a percentage of the transferred balance.
  • Credit Score Requirements: Check the credit score requirements for the card. Some balance transfer cards may have stricter criteria, so ensure your credit score aligns with the card's eligibility requirements.

Is a Balance Transfer Credit Card a Good Idea?

A balance transfer can be a good idea if used strategically. This financial strategy provides an opportunity to save on interest and pay off debt more efficiently. The best way to use this tool is to consider fees and ensure you can repay the balance within the promotional period.

How a Balance Transfer Impacts Your Credit Score

Keep in mind that a balance transfer can affect your credit score, both positively and negatively. The impact is determined by various factors, including your overall debt, how you execute the balance transfer, and your financial actions after it.

  • Credit Inquiry: Applying for a new balance transfer credit card means the lender conducts a hard inquiry on your credit report, which can cause a temporary drop in your credit score.
  • Credit Utilization Ratio: If you transfer balances to a card with a high credit limit and keep your other cards open without increasing their balances, you could lower your overall credit utilization ratio, which can positively affect your score. Conversely, if you transfer a balance that consumes a large portion of the new card’s credit limit, your credit utilization for that card could increase, potentially harming your score.
  • Age of Credit Accounts: Opening a new credit account to transfer balances will lower the average age of your credit accounts, which can negatively impact your score.
  • Debt Repayment Behavior: If a balance transfer helps you pay down your debt more efficiently thanks to a lower interest rate, you could positively impact your credit score over time by reducing your overall debt.
  • Potential for Increased Debt: Freeing up credit on the cards from which you've transferred balances, you might be tempted to incur additional debt. If you accumulate more debt, this can negatively affect your credit score.

How can you then minimize the negative impact on your credit score? Here are a few strategies to try:

  • Shop around for balance transfer offers that require only a soft inquiry or pre-qualification without a hard credit check initially.
  • Aim to transfer balances to a card with a credit limit high enough to keep your credit utilization low.
  • Avoid closing your old credit card accounts immediately after transferring balances, as this can increase your credit utilization ratio and decrease the average age of your accounts.
  • Prioritize paying down the transferred balance within the promotional period to avoid potential debt accumulation.

Balance Transfer Credit Card FAQs

What is important to know about a balance transfer?

It's important to be aware of the promotional period, the interest rates, and any associated fees. Additionally, ensure that you understand the impact on your credit score.

What is the catch to a balance transfer?

The catch often lies in the post-promotional period interest rates and any fees associated with the transfer. If the balance isn't paid off within the promotional period, higher interest rates can apply.

How do you maximize balance transfer?

To maximize balance transfer, focus on paying off the transferred balance within the promotional period. Minimize additional charges and avoid accumulating new debt on the new credit card.


Balance transfer credit cards can be valuable tools for managing credit card debt effectively. By understanding how they work, choosing the right card, and considering fees and your credit score, you can leverage balance transfers to save on interest and expedite your journey toward financial freedom. Approach this strategy wisely, staying aligned with your financial goals.

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APR = Annual Percentage Rate

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