Carrying a balance on a credit card can be stressful when interest charges rise month after month. Even if you're paying more than the minimum, it's easy to get stuck under a mountain of debt.
One option for relief is a Balance transfer. This won't eliminate your credit card debt, but it can effectively pause interest charges so you have more control over your money.
What is a balance transfer?
A balance transfer is when you move your balance from one credit card to another that offers lower or 0% interest. Annual Percentage Rate (APR) For a specified period of time, usually six months to two years. For example, the Wells Fargo Reflect® Card offers new cardholders an introductory APR of 0% for 21 months from account opening on qualifying balance transfers (balance transfers made within 120 days are eligible for the introductory APR).
Not everyone will qualify for the best balance transfer programs. People with fair to excellent Credit scores They are more likely to agree. For those with poor credit, a balance transfer may not be the most cost-effective option as interest rates are likely to be in the double digits on most cards.
Balance transfer credit cards can be a smart strategy if you have a way to pay off your debt relatively quickly, says Jane Kelly, a New York-based credit coach and founder of Kelly Group.
“I think it's a great step in terms of having a plan to pay off your debt,” Kelly says. “A lot of times, unfortunately, I see that the good intentions are there, but then the debt doesn't get paid and then the interest starts all over again in 18 months. So that was a wasted opportunity.”
How balance transfers work
Most credit card issuers offer a balance transfer program. In general, it features an introductory introduction 0% Apr On balance transfers that can last from six to 21 months. Sometimes these cards will also offer 0% APR on new purchases.
After the introductory window closes, your APR will increase, usually to double digits. This rate is variable (meaning it can go up and down), and depends on your credit score.
To take advantage of these introductory offers, some cards require you to request a balance transfer within a certain number of days of opening your account. You'll likely need to pay a fee as well.
Here are the steps to complete a balance transfer:
- Apply for a balance transfer card. Applying for a balance transfer card is as simple as going to the credit card issuer's website and providing your name, address, Social Security number, income, and the amount you want to transfer. The company will check your borrower history by conducting a difficult investigation of your credit report, which will not take long.
- Start the transfer. If you're approved, your new credit card issuer will give you instructions to transfer your balance either online or over the phone. Be prepared with your account number (which is the same as your credit card number) and balance amount. Keep in mind that the credit card issuer may approve your transfer request for a lower amount than you requested. Let's say your debt balance is $10,000 and you have a credit limit of $7,000. You can only transfer an amount up to your credit limit minus any transfer fees.
- Pay transportation fees. Most credit card issuers charge an upfront balance transfer fee. Usually the largest percentage is debt or fixed fees. For example, 3% of the balance or $20, whichever is higher. The fees can be inconvenient for larger balances, but are often a small cost to avoid much higher recurring interest fees. But it's a good idea to run the numbers beforehand to make sure you save enough in interest charges to justify the fee.
- Keep paying your bill. Balance transfers are not instant. It may take up to a month for your balance to transfer to the new card, at which point the introductory 0% APR period begins. In the meantime, keep paying your bill on your primary credit card so you don't incur any additional fees or interest charges.
- Make sure the old card has a $0 balance. Before you turn your attention to a new credit card, make sure your old credit card account shows a balance of $0. You may need to call to confirm. If you can't transfer the full amount, you'll need to keep paying that card as well.
- Make a rewards plan. Sure, a balance transfer can buy you some time, but it doesn't erase your debt. The good news is that 100% of your payments will now go toward your principal balance, rather than partially covering interest charges, so you can stick to your plan. Pay off credit card debt For good. However, Kelly suggests giving yourself a little buffer period. “You really want to look at this calendar,” she says. “If they give you 18 months, try to pay in 17 (months).”
Do balance transfers hurt your credit?
Applying for a balance transfer will likely hurt your credit score because the credit card issuer will run a hard investigation into your credit report to check your borrowing history.
But any negative impact on your credit score can be quickly reversed if you pay your bill, Kelly says. Making payments on time and reducing outstanding debt balances goes a long way in raising your score. Your payment history and credit utilization — the amount of your available credit used, including what you owe, during a billing cycle — accounts for 65% of your FICO credit score.
“I wouldn't suggest getting a balance transfer credit card when you're buying a new home,” Kelly says. Mortgage lenders look closely at your credit activity to determine rates, and any drop in your credit score, no matter how temporary, can be painful, she says.
Pros and cons of balance transfer
Whether a balance transfer is right for you depends on your financial situation. Overall, there are some pros and cons to consider.
Pros
A balance transfer can help you pay off debt without having to worry about your balance rising every month due to interest charges. Another upside is that if you have balances on multiple credit cards, you may be able to transfer everything to one card with a 0% balance transfer APR.
The best balance transfer credit cards also offer additional perks like cash back or miles — although not all cards offer anything extra. This is an example of a cash back card that also has a good balance transfer offer. New cardholders can get an introductory 0% APR on balance transfers for 18 months (after that, the variable APR will be 19.24% – 29.24%, based on your creditworthiness). You can earn up to 2% on every purchase with unlimited 1% cash back on purchases, plus an additional 1% when you pay for those purchases. It's a smart incentive to help you keep track of your credit card bills once you've paid off your debt.
If you're looking to earn points, miles, or cash back on future purchases, but need to pay off the remaining balance first, a balance transfer may be a good starting point.
cons
The interest free period on the balance transfer offer is only temporary. If you can't pay off your entire balance in that time frame, you'll end up paying a double-digit APR again. Also keep in mind that most credit card issuers charge an upfront balance transfer fee. If you're transferring a large balance and don't have the cash to pay the fees, a balance transfer may not be the right move for you.
The biggest downside to balance transfers is that they simply aren't affordable for everyone. Credit card issuers with 0% APR offers can be strict about approvals, and often prefer borrowers with good to excellent credit scores. If that's not you, Kelly says, stay focused on paying off debt so you can raise your score.
“Do it without the 0% (offer APR) and work hard at getting that debt down, because when you get your credit card debt down, your score will go up,” Kelly says.
The content on this page is accurate as of the date of publication; However, some of the offers mentioned may have expired.
