Although credit cards can help you with cash flow during a crisis, an unchecked long-term balance can drain your savings and prevent you from achieving your financial goals.
Conventional wisdom might have it that if you do accumulate a heavy balance over multiple cards, you can simply consolidate all that debt neatly onto a single credit card with a 0% introductory balance transfer offer and close your other accounts.
Say, for example, you owe $5,000 on one card and $3,000 on another; you could package both balances together and pay off that grand total of $8,000 interest-free over however long the new card's introductory period lasts. However, there are a number of factors to consider before you begin looking at balance transfer credit card offers and then closing your other accounts. If you aren't careful, you could find yourself paying more than you were originally or, worse yet, damaging your credit.
What is a balance transfer?
Put simply, in the credit card world, a balance transfer means that you move an existing balance from one credit card to another credit card. Many credit card issuers offer introductory periods during which new cardholders can move a balance on to that new card and then pay no interest on the balance for a set period of time, which is generally six to eighteen months.
These introductory offers can be a great tool for buying yourself some time, interest free, to pay off a major purchase, unexpected or otherwise, for the time the offer lasts. However, it's important to read the fine print on any offers you consider so you know exactly what you're getting into.
It’s important to note that regular APR will apply to any unpaid balances once a promotional period expires. With that said, it’s imperative that you pay off, or at least pay down as much as possible, your balances before this happens; otherwise, you might find yourself in a worse off position than you were before.
Can I qualify for a balance transfer card?
Generally, balance transfer credit cards are offered to those who have good or excellent credit. In some cases, you may be able to get an offer on a balance transfer card without a good credit score, but the terms will likely not be as favorable and you might not qualify for a card with a 0% introductory APR offer. Depending on your credit history, you may want to look into getting a secured credit card that allows you to get a balance transfer and use that card to rebuild your credit.
Do balance transfers hurt my credit?
In terms of credit utilization, which is the amount of available credit that you have used, opening a new card can hurt your credit, at least temporarily. When you first apply for a new card, the lender will conduct a credit check that could momentarily cause your credit score to drop. However, when your new card is opened, you will have a higher credit limit than you previously did, which means that your overall credit utilization will decrease– which should cause your credit score to increase if you don't increase spending on that card. If you go on to max out your new card after the balance transfer, it will likely have a negative effect on your credit though.
What is the best way to pay off a balance transfer?
Getting a balance transfer card is a great opportunity to pay off your debt if you come up with a solid plan on how to do it. Make sure to find a balance transfer credit card that lets you consolidate an appropriate amount of your debt (if you can keep it under 30% of the card's credit limit, that's ideal) onto a 0% introductory APR credit card. You'll need to consider how long you think it’ll take you to pay off your debt as there are introductory periods that range anywhere from a couple of months to much longer, depending on the card you choose.
If you already have a good-to-excellent credit score, you should be able to find some solid deals from major card issuers. In addition to the length of the introductory offer, you'll want to look at the balance transfer fees charged by balance transfer credit cards. That quite common fee means you may or may not save money by transferring a balance from another card. It depends on the interest rate of the old card and how long you anticipate needing to pay it off.
Understanding your long and short-term goals will go a long way in helping you decide how to go about using balance transfer credit cards. Regardless of your situation, take the time to fully educate yourself as you move forward in tackling your debt and getting a better understanding of balance transfer credit cards. Use tools like credit card payoff calculators to estimate how long it will take you to pay off your balance so you can make an informed decision. Also, to ensure that you don't miss a payment, you may want to consider setting up automatic payments a few times a month.
Balance transfer pitfalls to avoid
Balance transfers can help you improve your credit score, but only if you handle them properly. In order to get the most out of a balance transfer credit card, you should avoid the following mistakes:
Don't put the card away and forget it. Although a balance transfer can help you pay off your debt at a lower rate, you have to keep up with the payments in order to enjoy this benefit. If you get the card and put it away in a drawer without making at least the minimum monthly payment, you may have your introductory 0% APR revoked.
Don't make purchases on your card until your transfer balance is paid off. If you do, you will impact your credit score by increasing your credit utilization rate, so it's best to focus on paying off your balance and taking advantage of the savings the transfer affords you.
Don't expect to earn a signup bonus when you open your account. Keep in mind that a transfer balance does not count toward the spending threshold to earn any signup bonus that may come with your card. In order to earn this reward, you will need to make new purchases on your card, which isn’t always advisable, as mentioned above.
Don't put off your plan to pay off your transfer balance. Although it's easy to forget about your transfer balance after you've had your card for a while, remember that your window to pay off that amount at the introductory rate will not last forever. Also, keep in mind that you may be required to pay a transfer fee when you make a transfer.
What is the best balance transfer credit card?
The best balance transfer credit card will vary for each individual credit card user. For example, if you only have a small balance to transfer, and therefore won’t use up much of your credit utilization, it might be okay for you to continue using that card while working to pay off your transferred balance. If that’s the case, you might want to consider a credit card that offers a 0% intro APR period, plus earns rewards on new purchases. The Citi® Double Cash Card - 18 month BT offer is a great option to consider as it offers a generous 18-month intro 0% APR balance transfer period before regular 13.99% – 23.99% (Variable) APR applies, as well as up to 2% cash back earned on purchases. Earn 1% when you make a purchase, and then another 1% when you pay at least the minimum amount due on your bill each month, on time. Citi is a CardRatings advertiser.
Perhaps rewards aren’t important to you and you just need as long as possible to pay off a transferred balance. If that’s the case, the U.S. Bank Visa® Platinum Card (This card is not currently available on CardRatings) might be a good fit as it offers introductory 0% APR on balance transfers for a whopping 20 billing cycles (then 14.49% - 24.49%* Variable APR - See Rates and Fees). Or maybe you're interested in an intro 0% APR period on both balance transfers as well as new purchases. If that's the case, the Citi® Diamond Preferred® Card might be your best pick as it offers intro 0% APR on both balance transfers AND new purchases for 18 months (then 14.74% - 24.74% Variable APR).
As you can see, different cards cater to the unique needs of different credit card users, so it’s tough to name just one credit card that is the best. To learn more and to help narrow down which balance transfer credit card is right for you, check out our best balance transfer credit card list for additional options.