I've hesitated in the past to administer credit card offers because of my own checkered history with cards. I'd never want to give a financial recommendation that could potentially hurt readers in the future. But after doing some research and surveys among readers, I've learned that the majority of you are very debt-focused: you're less than $10k in debt and very motivated to pay it off. This means that 0% balance transfer offers, and learning “what is a balance transfer?” can make your debt freedom both less expensive and likely to happen sooner.
Just so long as you don't use the card irresponsibly once you slay all that debt in the face. First, let's learn about what a balance transfer is before we talk about how to put one to work for you.
How Does a Balance Transfer Work?
A balance transfer works by transferring credit card debt to a new card, preferably one with a lower interest rate and better terms.
It doesn’t reduce your debt, it just gives you more time to pay off debt and save on interest rates. Your old card would be paid off and you would owe payments to the new card. Usually there is a promotional period where the interest rate would be 0%.
But there are certain items to be mindful of when evaluating balance transfer offers:
- Balance Transfer Fees – Most balance transfer fees range between 2% to 5% of the total amount of your transfer between cards.
- Interest Rates – Balance transfer interest rates and purchase interest rates will be different.
- Promotional Rates – Look for cards with a promotional 0% balance transfer interest rate. This gives you a limited-time to pay off an interest-free balance.
- Promotional Periods – Understand the promotional periods on balance transfers. Most cards will offer zero transfer fees and 0% interest rates only for a limited time. For example, if you don’t pay off the transferred amount within 12 months, the normal balance transfer APR will apply. Sometimes those APRs can be upwards of 25% retroactive.
- Promotional Rewards – Are there any balance transfer rewards? Some cards offer rewards when you transfer a balance and pay off the balance during the promotional period. These are worth looking into.
What Does it Mean to Transfer a Balance?
Transferring a balance means to transfer a portion or all of an existing debt from one credit card to another. This does not reduce the original amount you owe, it just transfers the debtor to whom you owe it to.
Do Balance Transfers Affect Your Credit Score?
Yes, balance transfers will affect your credit score. And, often you must have good credit in order to qualify for them. (690+).
The perks that make balance transfers worth it (zero interest and fees, long promotional periods, rewards, etc.) are reserved for those with high credit scores.
Here are the factors of obtaining a balance transfer offer that will affect your score:
- Hard inquiry – You’re applying for a new card. It may not affect your score overall but will impact it if you already have multiple inquiries already
- New account & Credit Utilization/Ratio – It will lower the average age of open accounts and may affect overall score negatively but paying down card balances will affect your score positively. Having a larger credit amount with lower utilization rate will benefit your credit score in the long run.
- Just make sure you don’t close the credit cards you just transferred your balance from because this will change your credit limits and utilization ratios.
Is it Smart to Pay Off One Credit Card With Another?
No. And anyway, you can’t use one credit card to pay another credit card. Credit card companies won’t let you.
However, if you plan to pay off your credit card balance with a balance transfer using a promotional 0% interest rate and zero fees card, then that’s a smart way to pay one credit card off with another.
Should I Pay Off My Credit Card with the Highest Interest or the Highest Balance First?
Which one you decide to pay down/off first is a matter of personal preference.
Where balance transfer offers make a difference is when you’re able to save on interest rates through transferring your balance onto a card that offers a 0% interest for a limited amount of time. Thus, giving you time to pay off that balance.
The amount of time it takes whether you pay down balance versus interest first does not make a ton of difference. If you want to save on paying interest then you would pay off the higher interest rate cards first.
Is it a Good Idea to Do a Balance Transfer?
These things can make a balance transfer a smart step in paying off debt and it can be worth it if you can find a good card:
- Verify that your credit score is good enough to qualify for 0% balance transfer and no-fee card.
- Make sure the credit limit on the new card is high enough to take on the balance of the old card.
- Look for a balance transfer card that offers no fees first.
- Verify that the promotional payoff period is long enough for you to be able to pay off your balance in full before any interest rates apply (or else doing a balance transfer isn’t worth it).
- Make sure the card you are transferring to has a 0% interest rate for the promotional period you’ll be paying off your debt. There are too many choices out there to settle for one that isn’t 0%.
You want to make a smart decision and be able to pay off all your credit card debt so use the above criteria when looking for a balance transfer card.
Here are a few transfer offers that you can use to be more strategic with your debt
- Capital One® Quicksilver® Cash Rewards Credit Card – 0% balance transfer APR for 15 months. $0 annual fee Learn more here.
- Chase Freedom Unlimited® – 0% balance transfer APR for 15 months. $0 annual fee. Learn more here.
- Citi® Double Cash Card – 0% balance transfer APR for 18 months. $0 annual fee. Learn more here.
- Citi Simplicity® Card – 0% balance transfer APR for 12 months. $0 annual fee. Learn more here.
Other Options for Eliminating Debt
A refinance loan works for those with over $5,000 in debt.
You apply for a loan (at a lower interest rate than offered on a credit card.) You apply, get approved, you get the funds and you pay off your credit cards with this money. Then, each month you pay the loan provider.
A debt consolidation loan (typically) a lower monthly payment at a much lower interest rate. This means you'll save money on interest, and have more money in your budget for additional payments. Which means if you have debt, these can be a really strategic tool to use in any debt payoff journey.
When evaluating debt options, it only makes sense if you run the numbers. Here is my favorite interest rate calculator so you can see the difference consolidation can make.
The Final TL:DR
- Balance transfers can make sense if you want to consolidate high interest debt to a 0% interest rate for a set period of time.
- You'll save money because you'll be paying 0% interest on balances instead of 17-24% on credit card.
- Balance transfer offers are typically reserved for those with good to excellent credit, but it's still worth investigating.