Not everyone has great credit. If you’ve missed some payments or maxed out your cards, you may discover your credit score has suffered.
Regardless of why you have bad credit, a balance transfer may be one way to get back on track. It can save money on interest, shorten the repayment period and make it easier to manage your monthly bills. Of course, any balance transfer savings will vary depending on account usage and payment behavior.
If you aren’t sure what a balance transfer credit card is or how it can help you, keep reading for everything you need to know about transferring a balance when your credit is poor. Keep in mind, a balance transfer card isn’t going to be right for everyone and likely isn’t the best way to raise your credit score or pay off debt. Your better option could be to responsibly use a secured credit card as you continue to pay down your existing debt. In time, your credit score will improve.
How a balance transfer credit card can help people with bad credit
A balance transfer means you are taking money you owe – that is, the card balance – and moving it from one credit card to another. It’s a relatively easy process, and some credit cards don’t charge any interest on transferred balances for a year or more, though intro 0% balance transfer offers for people with poor credit are rare.
Still, for someone with bad credit, a balance transfer credit card can offer a number of benefits:
- Lower monthly payments: If you use a balance transfer card with a 0% APR (or really any APR lower than the one on the card with the balance), there is a good chance your minimum monthly payment will be lower than what you were paying on your previous credit card. This can free up money in your budget and make it easier to pay bills.
- Save money on interest: Beyond reducing your monthly payments, a lower or 0% APR balance transfer credit card can save you thousands of dollars in interest. For instance, let’s say you have a $10,000 balance on a card that charges 25% APR. If you transfer that balance to a 0% APR card, you could save $2,500 over the course of a year. Use the CardRatings.com balance transfer calculator to see how much you can save.
- Get out of debt faster: If you aren’t paying any interest, then the full amount of your payments are applied to the balance. That can help you get out of debt faster. To make the most of the lower APR, try to pay more than the minimum payment each month.
- Reduce your credit utilization When you open a new credit card, you instantly increase your amount of available credit and, therefore, reduce your credit utilization. Keeping your credit utilization low reflects positively on your credit score.
Will a balance transfer hurt my credit?
A balance transfer by itself shouldn’t affect your credit score. However, opening a new account with a balance transfer credit card can temporarily drop your score by a few points.
When you apply for a new account, most credit cards – but not all – will pull a copy of your credit report for review. Known as a hard inquiry, this can have a minor negative impact on your score.
Beyond that, a balance transfer could hurt your credit if you continue to spend on your old credit card. In that case, you may just end up deeper in debt than you were before the transfer took place.
On the other hand, if you use a balance transfer card wisely by not charging any additional purchases and paying down your existing balance, you could find that it helps give your credit score a boost as you pay off your debt and continue to reduce your credit utilization.
Balance transfer cards for bad credit
The best balance transfer credit cards – generally, that is those that offer an intro 0% APR period – are only for those with good or excellent credit. In fact, many cards for people with poor/limited credit don’t offer any kind of balance transfer option, let alone one at a lower APR. However, the Discover card below is one option to consider.
Alternatives to a balance transfer if you have bad credit
Even if you do find a card that offers a favorable balance transfer option, there’s always a chance that you may not be approved. In that case, you may want to try one of the following strategies.
Use a debt consolidation loan: Applying for a personal loan offers another avenue to save money and get out of debt more quickly. Unlike credit cards, loans have a set repayment schedule, which means you have a fixed monthly payment for a specific number of months.
Build your credit: If you have trouble getting approved for a credit card or loan, you can use a secured credit card or a credit builder account to increase your score. Making timely payments and reducing your debt can also improve your chances of getting a balance transfer credit card in the future.
Become an authorized user: If someone you trust and who is responsible with their credit cards is willing to make you an authorized user, it could help you build your credit. This won’t directly help you pay down your existing debt, but anything that increases your credit score will help you secure better terms for your own financial products – even a balance transfer card – in the future.
Should you do a balance transfer with bad credit?
If you are serious about getting out of debt and can commit to not running up a new balance on your old credit card, applying for a balance transfer credit card can be a good choice. It’s a convenient way to consolidate debt, save on interest and minimize the number of payments you have to make each month.
However, if you tend to overspend and think you might be tempted to continue using your old card, you may want to work on creating and sticking to a budget before making a balance transfer.
Once you are ready, the next step is to read about how to do a balance transfer.