What is a balance transfer? Move your debt to a 0% card | finder.com

What is a balance transfer?

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There are a lot of fancy words thrown around in the credit card industry and “balance transfer” may seem like one of them — let’s demystify the term.

A balance transfer means that, for a one-time fee, you take the debt you owe on one credit card (your balance) and move that amount to another card. Simple, right?

So, why do balance transfers matter? Well, they can be a great option if you’re paying heavy interest on your current credit card. With a balance transfer, you can move your existing balance to another card that offers low or no interest for a period of time. This can help you pay off your debt faster and more cheaply.

How balance transfers work: An example

Let’s say Mary currently has a credit card. She has a balance of $5,000 on the card and has a 20% interest rate on that amount.

A 20% interest rate is pretty high, and interest is compounded daily. This means that while Mary is trying to pay off her debt, interest on her balance keeps accumulating. Wouldn’t it be nice to have a break from that 20% APR for a bit?

That’s where a balance transfer card can come in handy. For example:

  • Mary finds a card that offers 0% APR for 15 months on balance transfers.
  • She transfers her current balance — $5,000 — to the new card. She also pays a fee of 3% of the transfer, which comes out to $150.
  • The balance on the new card won’t accumulate interest for 15 months. Mary can pay off her debt knowing that it won’t increase for quite a while, as long as she doesn’t add to it with more spending.

Balance transfers: Let’s dive into the basics

A balance transfer can be a great option if you need some help paying off your debt. Before applying for a balance transfer credit card, take note of the following so you’re never taken by surprise:

You’ll pay a fee for the balance transfer

When you move your balance to a new card, you’ll need to pay a balance transfer fee. As an example, let’s say a card’s balance transfer fee is 3%. If you’re transferring $1,000, you’ll pay a fee of $1,000 x 3% = $30.

You’ll get a great APR on your transferred balance

A good balance transfer card will offer 0% interest for a while on the debt you transfer. A really good balance transfer card will give you 0% APR for a long time. Instead of getting 0% APR for 6 months, for example, you could get 0% for 21 months.

After the introductory APR ends, you’ll start paying interest

Some people forget to keep track of when their introductory APR expires, then are surprised when they’re charged interest. Consider how long your low intro APR lasts, and consider whether you can pay off your balance (or get close to doing so) within that time.

It’s important to make monthly payments on time

Here’s one of those conditions that might throw you for a loop: You only get the nice 0% APR if you make your monthly payments on time. For just one late payment, your credit card provider may revoke the promotional APR. That said, it’s a great idea to schedule automatic payments.

The process can take a while

Balance transfers are usually completed within 7 to 10 days. In the meantime, keep up with your current monthly payments to avoid taking any hits to your credit.

Having good credit helps

Credit card providers usually require good credit to initiate a balance transfer. However, if you look around, you can find some great balance transfer cards for poor credit.

You can transfer more than credit card debt

Credit card debt is the most common debt moved with balance transfers, but you may also be able to transfer auto loans, mortgages, and student loans.

Find a credit card with great intro rates and terms, or read our guides to help you decide.

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Compare the credit card offers in our credit card comparison tables to come to an informed decision.

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Apply for your new credit card securely via the bank’s online credit card application form.

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Balance transfer promotions: Too good to be true?

A 0% interest rate on a balance transfer for several months might sound too good to be true. What’s the catch?

There are a few incentives for credit card companies to offer low-APR promotions on balance transfers. Here are a few of them:

  • It’s a cheap way to acquire a customer. It can cost a lot for a credit card company to acquire a new customer. Instead of spending all those marketing dollars to reach you, a card provider might offer a really good balance transfer promotion instead. Now, people may talk about how good of a deal the promotion is and convince others to apply — essentially doing free marketing for the card company.
  • After the low-APR promotion ends, you’ll start paying interest on your balance. That low-APR promotion will end eventually, at which point your remaining balance will be subject to a much higher interest rate. A credit card company can make hundreds or even thousands of dollars from you in interest charges. To avoid this, we recommend paying off your entire balance before your low interest introductory rate ends.
  • You might make purchases with the credit card. Your primary reason for getting a balance transfer card may be to get help paying off your debt — but you might also buy something with the card. Of course, you may start accruing interest on your purchases, hence making the credit card company money.

Balance transfer cards might seem too good to be true, but fortunately they’re not. As long as you use them carefully, they can be great options for paying off debt.

The balance transfer process

Starting a balance transfer is simple. Here’s how the process works:

  • Choose the best balance transfer card for your needs. Look at factors like how long the promotional APR lasts, what fees you’ll pay, and what rewards you’ll receive.
  • Check how much you can transfer. There may be balance transfer limits in play (for example, your balance transfer limit may depend on your credit limit). Before submitting an application, check how much you’re allowed to transfer.
  • Submit your application. First, make sure you meet the eligibility requirements. Then gather additional required documents and send out the application!
  • Sit tight and wait for approval. This usually takes between 7 to 10 days.
  • Confirm your transfer. Check that the balance transfer was completed as expected. Also, consider closing out your old accounts.
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