Should I Use a Balance Transfer Card to Manage My Debt?

UPDATED: May 22, 2023
PUBLISHED: May 22, 2023
millennial man researching balance transfer cards

You may often see mail or banner ads from banks and credit card companies for a balance transfer card. These ads might seem like a dream come true, offering 0% interest on any amount you transfer up to your credit limit.

Balance transfers can be an excellent way to help you manage your debt, especially if you have good credit. But they aren’t the final solution to debt problems. 

Using a balance transfer card if you have credit card debt can help you save some money on interest, but only if you use it effectively and plan to eliminate your debt before the low-interest rate expires.

What is a balance transfer card?

A balance transfer moves an existing credit card balance to a new card, preferably one with a lower interest rate. Most balance transfer offers come with an initial promotion of a very low or 0% interest rate for a set time, usually six to 18 months. This makes them an appealing option, as they can help users pay off debt faster and avoid paying more interest than they have to.

How does it work?

To start a balance transfer, you must apply for a new credit card or take advantage of an existing offer from your bank. The card company will check your credit score as part of the application. This is considered a hard pull on your credit, which may decrease your score by a few points or more. 

While you can often transfer a balance from one card or bank to another, you can’t generally move a balance from the same issuer. So if you have debt on an American Express credit card, you usually can’t use an American Express balance transfer offer. 

Once your application is approved, you’ll work with the new company to initiate a balance transfer. You must provide the bank name, account number and balance information for the debt you want to transfer.

Balance transfers usually take about five to seven business days, but can take up to six weeks. Once the transfer is complete, you have to wait for the balance and any fees to be added to the new card. Then, make payments as you usually would and pay down the debt. 

Do your best to avoid adding more charges to the new or old card once you complete a transfer. Using either card for new purchases defeats the purpose of a balance transfer. Plus, depending on the new card’s terms, new charges may not be eligible for the low APR offer.

What are the risks of a balance transfer?

Using a balance transfer card can buy you some time to pay off your debt. But you still need to know the potential risks. 

Fees: Not all cards charge a balance transfer fee, but some do, so it’s essential to do your research. Fees are usually between 3% to 5% of your transfer balance. If you’re moving a balance of $5,000, you’ll see a fee of $150 to $250. 

Be sure to calculate your total debt before applying and account for any fees that will be added when completing a balance transfer. This can help you avoid exceeding your new card’s credit limit.

A higher interest rate after the promotional period: Typically, a 0% APR is only valid for a few months and expires after the period outlined in the card terms. If you haven’t paid off the card balance when the initial period ends, any remaining balance, along with new charges, is subject to the card’s current APR. 

Missing a payment: Making a late payment on a balance transfer card may lead to the introductory offer being removed and your balance being subject to the total interest rate or a penalty interest rate. To avoid this, pay at least the minimum balance every month before the card’s due date.

Should I use a balance transfer card?

Using a balance transfer card can be a good idea to help you pay off debt. However, it might not save you much money in the long run if you pick the wrong card. Do the math to see what you’ll save with a balance transfer compared to leaving your debt on the original card and aggressively paying it off. 

In general, it can be a good idea if:

  • You have a high credit score.
  • The card you’re transferring to has a lower APR than the original, even after the introductory period expires.
  • You can pay the balance in full before the promotional period ends.
  • You won’t add debt to either card.

There are other options besides using a balance transfer credit card. A personal loan, for example, can help you consolidate multiple cards into one monthly payment. While you will pay interest on a personal loan, it often has a lower rate than credit cards and fixed monthly payments, making budgeting easier.

How do I choose a balance transfer card?

If you decide to use a balance transfer card to help you manage your debt, keep a few things in mind to choose the right one for you.

Review the credit requirements. Companies generally provide the best terms and interest rates to people with good credit scores (typically 670 or higher). The higher your score, the better your offer. Before applying for any cards, check your credit score with the three major credit bureaus, and consider how likely you are to get the best available terms. 

Understand the fine print. Check the cardholder terms and conditions and any additional fine print on balance transfer cards. Ensure you understand any fees and see if new purchases are subject to interest. It’s also wise to look for a card with perks that might make you want to continue using it after the initial rate expires, like cash back or rewards points. 

What is the APR after the promotion ends? It’s vital to understand what the interest rate on the card will be after the preliminary APR expires. While a six-month period of no interest can help you get ahead on your debt repayment, if the APR is higher than the original card, you may add to your debt instead of reducing it. 

What is the total debt you’re transferring? Calculate your total debt before applying for a balance transfer card. Consolidating multiple cards into one balance can be convenient. However, if you have considerable debt, consider whether a balance transfer card is the right tool. If you can’t pay the total amount back before the 0% APR expires, you may just delay a problem instead of fixing it. 

Bottom line

If you use a balance transfer card, understand what you’re signing up for and read the fine print carefully. Make all your payments on time as part of your debt repayment strategy and avoid adding new debt to the problem.

Paying off your debt can take considerable time and effort, but it’s worth it and can help you prepare for a better financial future.

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