A balance transfer is the act of moving an existing credit card balance to a different card. Cardmembers can pay off their debt faster by transferring their balance to a credit card with a lower interest rate. If you are stuck in debt with a high interest rate credit card, then you might benefit from a balance transfer.
How do credit card balance transfers work?
A balance transfer can allow you to reduce the interest rate on your credit card debt. If you have credit card debt on a high annual percentage rate (APR) credit card, moving that debt to a lower APR credit card can reduce the amount you will pay each month in interest charges.
Opening a new credit card that features a zero percent APR on balance transfers for an introductory period can reduce your interest charges completely during the introductory window.
To transfer a balance to an existing card, you can check your card's terms and conditions or call the card issuer and ask about the balance transfer features of the card. You will want to know:
- What the limit on balance transfers is
- What the balance transfer fee is
- What the APR on balance transfers is
- How long any introductory APR windows are
- What the APR will be when that window closes
Balance transfers can usually occur over the phone with your credit card company or online.
Benefits of a balance transfer
You can pay off your balance faster
A balance transfer allows you to move your credit card balance to a card with a lower interest rate. If your current credit card has a high interest rate and you are trying to pay down your credit card balance, transferring to a lower interest rate card can help you reduce your monthly charges. Instead of having a portion of your monthly payment go toward interest, you can pay off a higher percentage of your balance. Many balance transfer cards offer a zero percent interest rate on your transferred balance for an introductory period using the card. The time may vary depending on the credit card and your issuer so be sure to double check this.
You can keep better track of your credit card debt
If you are using multiple credit cards, transferring your balances to one single credit card can make it easier for you to keep track of your monthly payments. Using one credit card can take away the hassle of managing multiple payments.
You can move your balance to a better credit card
You can transfer your balance to a card that offers better perks for your spending habits. Just be aware that the transfer itself may not count for points on this new card. If you choose a low interest rate card with rewards that match your spending habits, you may be able to receive benefits when you start spending, while paying off your balance.
Precautions and limitations of a balance transfer
You may be tempted to overspend
Transferring your balance to a new credit card means you may have new lines of credit available to you. You may be tempted to spend your available credit and this could be a problem if you are already in debt. Make sure that you will stay committed to your budget and avoid overspending before performing a balance transfer.
You may be charged a balance transfer fee
When you make a transfer, many credit cards charge a balance transfer fee that is typically three to five percent of the amount you transfer. Before making a balance transfer, compare the cost of the fee with the interest you are paying on your current credit card. If the balance transfer fee is higher than the interest you are currently paying each month, a transfer may not help you reduce what you owe.
You might not be able to transfer your whole balance
If you have a limited amount of credit on your new card, you might only be able to transfer a small percentage of your balance. You should figure out if your credit card is in good standing and how much money you want to move before you make a balance transfer. If you're applying for a new card rather than transferring to an existing one, keep in mind that you may not get approved for a credit limit large enough to cover your ideal balance depending on your standing.
How to transfer a credit card balance
1. Determine if a balance transfer is right for you
Before looking for a new credit card, make sure that a balance transfer is right for you. Consider several factors, such as whether your credit is in good standing and if your current credit card's interest rates are higher than the balance transfer fee.
2. Compare credit cards
Do some research on credit cards that offer low interest rates. Compare cards based on introductory APRs, balance transfer fees and limits, how much time you have to transfer your balance under the terms of any introductory offer and what the APR will be when any introductory windows close.
3. Apply for a credit card
You can apply for a new credit card to make a balance transfer online by submitting an application. Fill out all relevant information and submit the application to the credit card company for approval.
4. Get approved
If you are approved for a credit card, you will receive a confirmation from the credit card issuer.
5. Transfer your balance
Once the credit card is approved, you can request your balance transfer either online, over the phone or in person. To make the request:
- Give your new credit card company your old account number(s)
- Tell your new issuer how much you want to transfer
- Wait for the transfer to be processed
6. Start paying off your debt
Now that your balance has been successfully transferred to a new credit card, be sure to pay down your balance on the new card — especially when an introductory APR begins. If you make more expenses on the new or old card or if you don't pay down the transferred debt, you risk having the introductory APR expire and you will be required to pay interest on the remaining balance.