What is a balance transfer and should I do one?
Key points to remember
A balance transfer can be a good idea to save money on interest charges.
Balance transfers work by requesting a new card with a low introductory APR, initiating a balance transfer, and paying off the balance.
Some cards are good for balance transfers, but others are not.
A balance transfer is a type of credit card transaction in which debt is transferred from one account to another. For those who are paying off high interest debt, such a move can save money on interest charges if done strategically. For example, a debt transferred to a credit card with a 0% introductory APR offer on balance transfers could potentially be repaid without interest.
Balance transfers, however, have certain costs and limitations. Typically, you will need to pay a balance transfer fee – typically 3% to 5% of the total transferred. And if your balance transfer card limit is low, you may not be able to transfer your entire balance.
How balance transfers work
While the exact balance transfer process can vary widely, here are the steps you typically need to take when working with large issuers:
1. Apply for a card with a introductory offer of 0% APR on balance transfers or redeem an offer on a card you already own. To get the best deals, you usually need to have good or excellent credit (usually FICO scores of at least 690). One thing to keep in mind: transfers from the same issuer are generally not allowed. For example, if you want to transfer a balance from one Citi card, you cannot transfer it to another Citi card.
2. Start the balance transfer. If you do this online or over the phone, you will need to provide information about the debt you want to move, such as the name of the issuer, the amount of debt, and the account information.
Sometimes balance transfers can also be initiated using convenience checks, or check issuers send you by mail. Before using one, however, read the terms to find out if it will count as a balance transfer and what your interest rate will be.
3. Wait for the transfer to complete. Once the balance transfer is approved, which can take two weeks or more, the issuer will usually pay your old account directly. This old balance – plus the balance transfer fee – will appear in your new account.
4. Pay off the balance. When this balance is added to the new card, you will be responsible for the monthly payments on that account. And if you pay it during the 0% APR introductory period, for example, you could potentially save a bundle.
Good balance transfer cards
The goal of a balance transfer is to save money, so you want to choose a card that helps keep your costs down. The ideal balance transfer credit card comes with three big zeros:
A 0% introductory APR offer for balance transfers.
With such a card, you could potentially pay off your debt without spending a dime on interest and fees. No transfer fee cards are rare these days, however, you will likely only find two out of three. Still, a card with no annual fee and an introductory 0% balance transfer offer is very valuable. Interest charges add up quickly and are often much more expensive than a one-time charge of 3% to 5%.
An important note: some 0% APR offers only apply to purchases. To save money when moving debt, you will need one with a 0% APR introductory promotion on balance transfers. Make sure the card you are requesting is in offer.
Do I have to make a balance transfer?
If you can manage to pay off a balance in three months or sooner, or if you can’t qualify for a good 0% APR offer, paying off your debt as quickly as possible might be the best and most profitable option. And if you want a higher limit and don’t mind paying interest, a personal loan might be a good solution; you can pre-qualify for a to see how much you could borrow and what interest rate you could get before accepting an offer.
But in general, a balance transfer is the most valuable choice if you need months to pay off high interest debt and have enough credit to qualify for a card with a 0% introductory APR on transfers. balance. Such a card could save you a lot of interest, giving you an edge when paying off your balances.