Balance transfer credit cards 101
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Balance transfer credit card offers. What exactly are they? How do they work? How do you choose and good one and, most importantly, is a balance transfer credit card the right choice for you? They're all questions we've heard from readers about balance transfer credit cards, so we'e put together this comprehensive look at the advantages, disadvantages, top picks and more when it comes to these financial tools. And, make no mistake, under the right circumstances, balance transfer credit cards are likely the right tool for the job.
>Already understand the ins and outs? Jump to some of our favorite balance transfer credit cards.
What is a balance transfer credit card?
Let's start with what it ISN'T: A balance transfer credit card is NOT a way to hide from debt you've run up on a card you already have. Your debt won't magically disappear if you transfer it to a new credit card.
Now for what they ARE: Balance transfer cards are designed for debt holders who are transferring debt from one credit card to another, typically to save money. Used wisely, balance transfer cards are all about paying down debt faster with a lower APR and they can save you a boatload of money.
- WHAT IS A BALANCE TRANSFER CREDIT CARD?
- WHAT SHOULD I KNOW ABOUT TRANSFERRING A BALANCE?
- DO I NEED A BALANCE TRANSFER CREDIT CARD?
- WHEN SHOULD I USE A BALANCE TRANSFER CREDIT CARD?
- HOW DO I PICK THE BEST BALANCE TRANSFER CREDIT CARD?
- A FEW OF OUR FAVORITE BALANCE TRANSFER CARDS
- APPLYING FOR A BALANCE TRANSFER CREDIT CARD
The primary incentive of balance transfer cards that make people perk up is the 0 percent introductory interest rate common to balance transfer cards. Low introductory rates on balance transfers and purchases are typically reserved for credit card users who have excellent credit, but there are options for those with good or average credit as well, particularly if you have relationship with a local bank or credit union.
Balance transfer cards can be a great way for cardholders to save money if the process is done strategically.
Do it yourself:
Find out how long it will take you to pay off your credit card with your current balance and APR, and then see how much you can save with 0 percent interest.
One other thing to think about: it's not uncommon for a balance transfer card to be a rewards card. too. While you won't earn rewards on the amount you transfer, you will earn rewards on any other purchases you put on the card, which is a nice incentive.
While there are many benefits of using a balance transfer credit card, there can also be downsides. Read on to find everything you should look out for while deciding if a balance transfer credit card is right for you.
What should I know about transferring a balance from one credit card to another?
As mentioned earlier, transferring debt from one card to another doesn’t make your debt disappear. Still, balance transfers can be a useful tool if done wisely, but there are a few questions you should ask yourself before using a balance transfer card.
Will a balance transfer affect my credit score?
This question doesn't have a black and white answer, but there are a few things to keep in mind. Applying for a new credit card will always affect your credit score. Each time you apply for a credit card, a hard inquiry is placed under your name, and inquiries to your credit history account for about 10 percent of your FICO® credit score.
"You should think about your current credit rating," said Lynnette Khalfani-Cox, a financial blogger and CardRatings contributor. "If you're maxed out already or if you've been 'churning' credit cards a lot, you may get declined. Under these circumstances, it can sometimes be better to wait a bit before applying for yet another credit card."
On the flip side, opening a new account should help your credit utilization ratio and allow you to reduce the amount of credit you're using on each of your cards. Think of it this way: if you currently have one credit card with a $10,000 limit and a balance on $5,000, you're using 50 percent of your available credit. Most experts recommend keeping your utilization ratio to 30 percent or less, and credit utilization makes up about 30 percent of your credit score.
If you then open a second credit card with a $10,000 limit, you've upped your available credit to $20,000 and reduced your utilization to 25 percent (plus, hopefully you opened that card to take advantage of lower APRs with a balance transfer).
Credit utilization and credit history are reasons we don’t recommend closing the account you balance transfer from; it may have a negative impact on your overall credit score, especially if the account you aim to close has been open for a while. Credit history makes up about 15 percent of your FICO® credit score.
How frequently should I use my balance transfer card?
Using a balance transfer card when there is no fee on the line is one thing, but be warned, balance transfer cards that tout an intro offer of 0 percent interest and $0 fees won’t be forever. After the intro period expires, APRs can (and often do) skyrocket. Furthermore, if you have the rare card that doesn't charge a balance transfer fee for a period, be aware that period is usually only 45 or 60 days from account opening. After that (and with the vast majority of balance transfer cards from the beginning) you'll pay a 3-5 percent fee for each transfer.
In other words, use your card responsibly and understand what the cost of your balance transfer transaction will be each time you intend to do one – don’t rack up unexpected fees.
What happens if I make a late payment?
If the glitz and glamour of the introductory offer is what drew you to the balance transfer credit card in your wallet, be sure to pay on time every billing cycle. If cardholders make late payments within the intro period, issuers may:- Assess a late fee
- Cancel the intro offer
- Switch to the normal APR
Do I need a balance transfer credit card?
If you have excellent credit and are paying a credit card balance with interest, strongly consider a balance transfer. Having excellent credit will likely earn you a low introductory (or ongoing) rate on your balance transfer card which will help eliminate your debt faster.
For everyone else, balance transfer credit cards are a tempting option, especially if you have a higher than usual credit card balance, and an APR that makes the debt mount up faster than you’re able to pay it off. But, before you succumb to the temptation, take a moment to really assess what you're signing up for. If you have a "good" or "average" credit score (or lower) the APR and terms you are signing up for may not actually help your situation.
>For more details jump to: How do I pick the best balance transfer credit card for me
When should I use a balance transfer credit card?
If you're searching out a balance transfer card, you're, we assume, going to be making a balance transfer. But when you do that and then what you do with your card after that are important factors to consider. Here are a couple of questions to ask:
Do I have to make the transfer within a certain time frame?
Some credit cards offer a 0 percent balance transfer for an introductory period of, say, 15 months BUT you have to make the transfer within the first 45 or 60 days in order to qualify for that 0 percent APR. Just because the introductory APR lasts for a year or more, don't assume that you can make your transfer at any point during that period and still qualify for the introductory APR. That said, many cards that offer blanace transfer intro periods offer similar terms for purchases; in that case, your purchases will be interest free throughout that time.
Either way, the introductory period will be the lowest APR you can expect from a balance transfer card, so it’s wise to use your card during that specific time frame.
What are the fees I need to consider?
Many balance transfer credit cards, regardless of the introductory 0 percent period, will assess a fee for all balance transfers made. Usually that fee is in the 3-5 percent range of each transfer made. Reading the fine print to see if the card of your choice charges this fee will help you decide if the balance transfer you’re aiming to make actually makes sense.
Once again, being hyper-aware of the time frame here could save you some money. Among the handful of cards that offer fee-free balance transfers, most of them only waive that fee for transfer made within the first 45 or 60 days of you opening the account. Missing that window could cost you a bundle.
Balance transfer fees typically range from 3-5 percent, so if you decide to transfer $1,000 of credit card debt, be ready to pay $30-$50 (plus interest). And, while that may not seem like that much money, it can certainly add up, especially if you are transferring larger sums of money or plan to make several balance transfers.
Is your credit card actually a balance transfer credit card?
Balance transfers are available on just about every credit card, but without reading the fine print, you could be in for a surprise. Unless your card is offering a lengthy 0 percent period, low fees and more, you could cause yourself more trouble than if you'd just left your balance alone. Just because the option is available doesn't mean you should always take it.
Is a personal loan a better option for me?
One of the most popular uses for personal loans these days is to consolidate credit card debt into a single loan with a fixed rate and terms. It's understandable why that would be the right choice for some people.
Every situation is different, so talk with a financial adviser if you're considering your options for paying off debt and wondering whether a balance transfer credit card offer or personal loan would be a better fit. In a very broad sense, a balance transfer credit card could be a better fit if you know you'll be able to pay off the balance within the 0% time frame since you'll be paying off debt without any interest charges. If, however, you'll need longer than a credit card balance transfer period to pay off your debt, the interest rate charged on a personal loan is likely much lower than what you'll pay in regular credit card interest. You can compare multiple personal loans side-by-side via CardRatings' partner site AmOne.
How do I pick the best balance transfer credit card for me?
Know your credit tier
Before you do anything else, get to know your credit score/history. If your credit has taken a hit in the past, getting a balance transfer card at 0 percent APR may be a bit of a challenge. Applying for cards for which your credit score disqualifies you will only negatively impact your credit score with no purpose.
There are balance transfer options available for cardholders with average or fair credit, but the terms may not be as desirable (as in, maybe they offer a lower APR but probably not a 0 percent APR). Understanding what fee and rate you will be getting is a valuable first step to determining which card will be best for you. All in, you may still pay less with a balance transfer, but you'll need to crunch some numbers to know for sure.
Read the fine print
We're starting to sound like a broken record with this point, but it's just so important. Often cardholders don’t look beyond the excitement of an initial 0 percent APR and that's a flashy feature, sure, but it can get you in trouble if it distracts you from the rest of terms. Ensuring that whatever APR your card transitions to (after the introductory offer) is just as important as looking into the intro offer. Ask yourself: What if your APR jumps from 0 percent to 20 percent – would the card still be worth it to you? Maybe it is if the rewards program is strong enough and you have a solid plan to pay off your balance during the initial 0 percent period.
Also, as we mentioned above, some cards also charge fees for each transfer you make. Knowing the terms inside and out will be the best way to save yourself some money.
Compare your debt to your credit line
Many people have a one-track mind when it comes to balance transfer credit cards: Get the lowest interest rate possible for the longest period of time. This line of thinking isn’t wrong, but it’s important to expand your mindset, too.
Remember that credit utilization makes up about 30 percent of your credit score. When you make your transfer, it's likely best to keep your old card open; closing it would reduce your available credit and your credit score could take a hit. Additionally, it's not a great idea to max out any credit card. In other words, if your new card has a $2,000 limit and you transfer $2,000, your credit score could still take a hit even if you keep that old card open.
Note the issuers of your existing card and the new card
How disappointing to go to the trouble of opening a new card only to find you can't use it for the thing you most wanted to use it for. If you aren't paying attention, it could happen.
In most cases, a bank won't allow you to take advantage of a balance transfer offer if you're just moving a balance from one card the bank offers to another the bank offers. In other words, you won't be allowed to move a balance from your Chase Freedom Flex℠ card to a Chase Slate® card (This card is not currently available on CardRatings) and take advantage of the 0 percent period. You'll want to look outside you're current issuer if you need to make a balance transfer.
A few of our favorite balance transfer cards
There are many options out there when it comes time to choose your balance transfer credit card, but we here at CardRatings have a few top choices. In fact, "Best Balance Transfer Credit Card" is a category in our annual Editor's Choice awards. The 2020 winner, as well as a top pick if you're looking for a balance transfer offer AND a cash-back rewards card, are described below. If you're looking for even more choices, check out our expanded picks for Best Balance Transfer Credit Cards.
Intro balance transfer APR: 0% for 18 months from the date of your first transfer (all transfers must be completed within the first four months of account opening). Citi is a CardRatings advertiser
Intro purchase APR: 0% for 18 months
Regular purchase and balance transfer APR: 14.74% - 24.74% Variable
Rewards: There aren't traditional rewards offered on this card, but cardholders do have special access to event tickets and numerous additional perks, features and protections as well. Plus, you can't overlook that lengthy introductory 0% period. Read our full Citi® Diamond Preferred® Card review.
Balance transfer fees: 3% of each balance transfer; $5 minimum
Annual fee: $0.
Credit needed: Excellent
Intro balance transfer APR: 0% APR for 18 months from when you open the account
Regular purchase and balance transfer APR: 13.99% – 23.99% (Variable)
Rewards: You can effectively earn 2% back on all your purchases – earn 1% back on every purchase and then earn another 1% cash back when you pay for your purchases via your credit card statement. We appreciate that this rewards-earning format encourages responsible credit card use. Read our full Citi® Double Cash Card - 18 month BT offer review.
Balance transfer fees: 3% of each balance transfer; $5 minimum.
Annual fee: $0
Credit needed: Excellent
Applying for a balance transfer credit card
After assessing which card fits within your spending wheelhouse, applying is an easy process.
Let's say you've decided on a card. With most credit cards, there will be an opportunity to apply online. You will need to enter some personal information, so make sure to apply over a secure connection in a private area.
You'll enter sensitive information like:- Name
- Social Security number
- Housing costs
- Employment status
- Annual income
Usually after you've entered in all of the requested data, the inquiry will automatically be submitted to the lender. Sometimes you'll see approval immediately and other times you'll receive a letter and/or a phone call to verify your approval or denial of credit card issuing. The process usually happens within a week at the latest (unless you're applying for a secured credit card or credit cards for bad credit in which cases the process can take up to four weeks).
Our Ratings System
We rate cards with the everyday consumer in mind by scouring the fine print and comparing offers. In short, if we wouldn’t use the card ourselves, we won’t recommend it to you. Our goal is to see if it fits your lifestyle and needs. Don’t worry if you aren’t a master credit card juggler – there are plenty of no-frills options that get the job done.