Are balance transfers worth it?

Quick insights

• Balance transfers may be a cost-effective and beneficial option if you want to save on interest rates.
• In order to qualify for a credit card offering a balance transfer with a low interest rate, you will need to have a good credit score.
• If a balance transfer doesn’t make sense for your situation, there are alternative options available.

Credit cards come with annual percentage rates (APRs), which means you could be paying a percent of your balance in interest if you can’t pay off your credit card bill in full every month. If you find that you’re accumulating debt and facing high interest rates, you may want to consider a balance transfer. This is a type of transaction where you transfer your existing credit card debt to another card with lower interest for a certain period of time. Let’s dive into the pros and cons of initiating a balance transfer to help you decide if it’s the right choice for you. But also please note that same-issuer transfers generally aren’t allowed.

The pros of balance transfers

There are a few benefits that come with initiating a balance transfer, including but not limited to:

• Cost-effective: Balance transfers may be a good choice if you know you have a high balance that may take months to pay off. Moving your debt from a high-interest credit card to one with low interest can result in significant savings on interest.
• Organization: Consolidating your debts into a single card rather than managing several different payments may be helpful. Having numerous monthly payments with different terms may make the process confusing or complicated, potentially leading to missed payments and decreasing your credit score.
• Promotional offers: Certain card offers may come with low introductory APRs for a specific period of time in addition to welcome cardmember bonuses.

The cons of balance transfers

On the other hand, balance transfers could come with some downsides. These include, but are not limited to:

• Fees: Balance transfers frequently come with transfer fees. They usually range from 3–5% of the total amount you‘re transferring. You may also be required to transfer a minimum amount. Note that the higher your balance, the higher the fee to do the transfer.
• Time limit: Card offers with lower APRs may only last for a certain duration. Be sure to read the terms and conditions of the card you plan on transferring your debt to so that you’re not blindsided. if you are not able to pay off your debt in the introductory period of your new card, be aware of what your go-to APR will be (it might be higher than your current one).
• Debt cycle: If you aren’t careful about making payments on time, or find yourself accumulating debt on a card, a balance transfer may create more opportunities for debt and defeat the purpose of consolidating credit card debt to save on interest.

When you should do a balance transfer

Balance transfers can be beneficial to you when you’re able to afford the potential transfer fees and looking to pay off debt at a lower APR. You could consider doing a balance transfer when you are trying to pay down credit card debt at lower interest rate or want to consolidate your monthly credit card bills and simplify your finances.

Balance transfers for business owners

While balance transfers can be helpful for certain individuals, the same can be true for business owners. You may find that a balance transfer could benefit your business. Note that there are several ways you can do this using a business credit card.

When you shouldn’t do a balance transfer

Before initiating a transfer, weigh the cost of it. If the fees are too high due to high credit card debts, you may want to hold off. Additionally, if you have several forms of debt, a balance transfer may not be your solution. Instead, you may want to focus on the root cause of these debts. Focus on making a plan or using alternatives to address your debts (more on this below).

Alternatives to balance transfers

You’ve weighed the pros and cons to balance transfers and decided it’s best to not commit to it right now. What should you do instead? Rather than a balance transfer, you may want to consider doing the following instead:

Prioritize and strategize paying off your debts

A balance transfer won’t be able to erase your debts. If your financial struggle is finding a way to pay off several different forms of debt, you may want to consider another strategic plan.

• Debt snowflake method—finding small ways in your budget to save and put those funds towards your debts.
• Debt snowball method—rolling your monthly payments from the smallest to your largest debt.
• Debt avalanche method—focusing on paying off debts with the highest interest rates first.

The type of debt repayment strategy you decide on will ultimately depend on the type of debt you have, the associated APRs, and the timeline and budget you’re working with.

Take out a personal loan

Even with the best laid plans, lives are often filled with unexpected challenges and even emergencies--and these can happen at any time. If your priority is to pay off a certain bill (for example, a sudden medical expense), taking out a loan at a fixed interest rate may be more cost-effective than a balance transfer. Be sure to review your debts and consider working with your lender or financial advisor to assess all your options.

My Chase Loan^®

Another debt consolidation and repayment strategy is to consider using card features that may be already available to you. One example of this is My Chase Loan if you are a Chase cardmember. With this feature, eligible Chase cardmembers can borrow money from their existing card's available credit and pay it back over a set period of time based on the loan amount with a fixed APR that's lower than their standard purchase APR. Funds are deposited into the cardmember's bank account and can be used for whatever they need, including paying off other credit card balances and consolidating monthly card payments.

Focus on improving your credit score

If you want to make a balance transfer, you might need to apply for a new card from another issuer and/or with a lower intro APR. The better your credit score, the better your chances are of landing a good interest rate and getting approved for the card of your choice. If you have the time and can afford to wait a bit longer, consider focusing on improving your credit score so that you can achieve better balance transfer opportunities, as well as improved financial wellness, in the future.