How Do Balance Transfers Work?

With a balance transfer, you move debt from one or more high-interest credit cards onto a new card — which could come with an introductory rate that charges less interest or no interest.

However, a balance transfer may not be a good move if you have a poor credit history or an enormous amount of debt. You can see below whether this debt-shaving strategy might work for you.

What is a balance transfer?

A balance transfer is a popular way to consolidate debt, one that lets you roll over debt from one or more credit cards onto a single card. That card could come with an introductory low variable APR, or even 0% APR, that will apply for only a set period of time.

A low-interest balance transfer card may come with a term of three years or more, while a 0% balance transfer card is more likely to come with a term of 15 to 18 months. As long as you pay off the transferred balance before the introductory rate expires, you will either owe less interest or no interest at all. If, however, you don’t pay the balance transfer in full and have any of it left after your introductory period ends, you could owe interest on that remaining balance going forward. Plus, the new variable APR on your balance transfer card could be higher than those of other types of credit cards — including the ones you transferred the balance from.

Balance transfer offers are common any time you apply for a new credit card. However, your creditworthiness will ultimately determine the terms you receive and the fees you’ll need to pay. For the best rates on a card with a 0% APR, for example, you’ll likely need to have good to excellent credit and a score that’s 700 or higher.

Pros and cons of balance transfers

Like personal loans and other debt consolidation methods, you’ll want to explore the risks and rewards of a balance transfer. Overall, you’ll need to consider your credit score, the amount of debt you need to pay off and whether it’s doable by the time a card’s introductory APR expires. Because the card ups your chances of landing in a cycle of never-ending debt, it may work best for borrowers who have a reasonable amount of debt — say a few thousand dollars — that can be paid off quickly and easily, with a minimum amount of financial stress.

Here’s a chart to help you decide whether a balance transfer is the best way for you to pay off credit card debt:

How to transfer a credit card balance

Step 1: Determine how much debt you want to transfer

Like any credit card, a balance transfer credit card typically comes with a maximum credit limit which you can’t exceed. So if your new card comes with a $5,000 credit limit, but you hope to transfer $8,000 worth of debt, this debt payoff strategy might not work for you.

Before deciding on a transfer amount, consider what you realistically might be able to repay before your new card’s introductory period expires. Keep in mind, too, that a balance transfer card will still require you to make minimum monthly payments to avoid late fees or a potential hit to your credit score. With some credit card issuers, you may even lose the introductory 0% APR you received if you’re late with payments.

Step 2: Find the balance transfer credit card with the best offer

Don’t be swayed by the introductory 0% APR that often comes with a balance transfer credit card. Check to see the actual APR you’d need to pay once the introductory period ends, and then compare total costs for each card, like whether it comes with an annual fee or balance transfer fees that kick in every time you consolidate debt.

To compare card offers, consider the following:

• Lowest APR. If you’re transferring a considerable amount of debt, look for a card that offers the lowest APRs possible, both during the introductory period and afterward, to really cut down on your monthly payments. Your credit history will ultimately determine the interest rate you’re given, but APRs for new balance transfer card offers now range from about 14% to as high as 25%.
• Longest intro APR period. If you’re transferring a high balance and are worried about not being able to pay it off before the introductory period ends, look for an introductory APR that lasts as long as possible, like up to 21 months. For an introductory 0% APR card, consider what your monthly minimum payments would have to be to pay off your balance before the end of the introductory period. To do this, check this credit card payoff calculator from LendingTree companion site MagnifyMoney.
• Lowest balance-transfer fee. Balance transfers often come with a fee, typically 3% to 5% of the total amount being transferred onto the new card. To cut your borrowing costs even more, look for a card that doesn’t come with a fee, or a card where you only start paying the free after a set time, like 60 days after opening the card. However, with some no-fee balance transfer cards, the introductory APR may not last as long as one that has a fee.

Step 3: Read the fine print, then apply for the card

Check your credit score and the credit limits that may come with your new card before you apply. Depending on your credit score, you may not qualify for your card’s maximum credit limit. Use our free credit monitoring tool to check your score and find ways to potentially boost it.

Step 4: Contact the credit card company to initiate the balance transfer

It’s generally easy initiating a balance transfer. You can either access your card account online, or call your card issuer. In both cases, be ready to provide:

• The name of the credit card company or companies from which you’re transferring a balance
• Account numbers for the debt you’re transferring
• The amount you’d like transferred to your new card

There’s a good chance your balance transfer will be processed immediately. However, it could take from two days to three weeks before a new creditor receives the funds.

Step 5: Pay off your debt under the new credit card

Once your balance transfer is complete, start making on-time payments with your new card. If you’re more than 60 days late with any credit card payment, you may see your interest rate rise on any outstanding balance, even if it’s a transferred balance — plus, as mentioned earlier, you could lose your introductory rate.

To pay down outstanding debt as quickly as possible, avoid using your card to make new purchases. Some balance transfer cards will offer a 0% introductory interest rate for new purchases, as well as transferred debt — still, your goal now should be to pay off the transferred debt before the introductory period ends and a higher APR kicks in.

FAQ: Balance transfers

Does a balance transfer affect your credit score?

Yes, a balance transfer will affect your credit score. Any time you apply for a new credit card your credit score may see a small drop, but the effect is usually temporary. If you use your new card to pay down debt faster, you’ll actually boost your credit score in the long run, as you’ll be using less of the credit available to you. About 30% of your credit score is determined by your credit utilization ratio, so you may see a quick uptick in your score by paying off your balance before the introductory period ends.

What happens to old credit cards after a balance transfer?

Any time you transfer credit card debt from one card to another, resist the urge to close the old card. This can shorten the length of your credit history, and may actually hurt your credit score. As tempting as it might be to drop old cards, keep them open, even if the balance on them is zero.

Does a balance transfer count as a payment?

By transferring old credit card debt to your new card, you’ll be making a payment to your original credit card lender.

Do balance transfers count as purchases?

Balance transfers don’t count as purchases, so a transfer won’t earn you any of the rewards that your card issuer might offer for regular purchases.

Is a balance transfer a good idea to pay off a personal loan?

It might be possible to use a balance transfer to pay down a personal loan, but you should check with your lender first. Interest rates on credit cards are both variable and generally higher than the fixed rates on most personal loans, so it’s far more common to use a loan to pay off high credit card bills. However, a balance transfer might make sense if your loan comes with a higher interest rate, and if you can reasonably expect to pay off the loan debt before your introductory APR expires.

Can you do a partial balance transfer?

In some cases, this might be the only way to go. For example, if the balance you’re thinking of transferring is larger than the credit limit on your new card, you might need to do a partial transfer.

Credit card issuers often set transfer limits, too. For example, depending on your card issuer, you may only be allowed to transfer only 75% to 95% of your available credit to make sure your account can still accommodate the cost of any necessary transfer fee charges.

When is the best time to do a balance transfer?

Once you open a new account, you’ll want to complete the balance transfer as soon as possible. Introductory APRs usually begin on the date you open the account, not on the date of the actual transfer, so you’ll want to give yourself the most time to pay down debt with that lower interest rate.

You should also note your card’s terms and conditions. Some cards may require you to transfer your balance in a certain amount of time (60 to 90 days, for example) in order to keep the introductory APR; if you don’t, you could end up with a standard or balance transfer APR.

Can I transfer a balance and then transfer it back?

In general, you cannot reverse a balance transfer once it has been processed. However, you may be able to cancel an in-progress balance transfer before it’s complete.

Do you get cash back or rewards points on balance transfers?

No. You won’t earn points, miles, or cash back with a balance transfer.

Can you still use an old credit card after a balance transfer?

Once you’ve moved money from one card to another, your old account will remain open rather than closing automatically. If you want to close the old card, you’ll need to do it yourself.