A balance transfer is a simple credit card transaction where debt from one credit card is transferred to another card, usually a new one, to take advantage of the new card’s promotional offer.
Balance transfers can be an excellent way of consolidating debt and repaying it faster, but there are some things to consider.
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Let’s dive in.
A balance transfer lets you transfer debt, or a “balance,” from one account to another. It’s a type of credit card transaction that can be beneficial for those paying off high-interest debt. If done strategically, it can save you a good chunk of money.
Although the existing balance amount remains the same, you can save money on interest payments. For example, by moving your credit card debt to an account that offers a 0% introductory APR on balance transfers, you could pay off your debt interest-free.
But there are a few things you need to be aware of before opting for a balance transfer on your new credit card.
Generally, there’s a fee involved, so you need to make sure that doesn’t negate the effects of the qualifying balance transfer. Additionally, if you have a low balance transfer limit, you may not be able to transfer the entire card balance.
So, what are the things you should be aware of before making a balance transfer request, and what are a few of the potential upsides?
Let’s take a look.
Balance transfers have several benefits that make them an attractive option for credit card users:
With the right balance transfer card, you can reduce the amount you spend on a balance transfer interest charge.
Generally, most new balance transfer cards offer an intro APR period of no interest for 6 months to 21 months. That provides a reasonable amount of time to pay down existing debt.
With a credit card balance transfer, you can combine outstanding amounts from several accounts into your new credit card account. This makes it easier to track bills and reduces fees.
Depending on the balance transfer card you’re applying for, you may receive other benefits. For example, the Citi® Double Cash Card offers an 18 month long 0% intro APR on balance transfers as well as, cash back on every purchase and access to the Citi Entertainment® portal.
Consolidating debt onto one account may lower your credit utilization ratio, which measures your outstanding balance against your available credit.
Your credit utilization ratio is a major factor in determining your credit score, so qualifying for a balance transfer card can ultimately improve your credit score in the long run.
Next, let’s take a look at some essential considerations before going in for a balance transfer.
Despite the potential advantages, there are a few things to keep in mind before you proceed:
Double-check your credit score before you apply for a balance transfer credit card. It’s safe to assume that the credit card company will usually require you to have good to excellent credit for one.
This means you’d usually need a score of 690 or more. If you’re not quite there yet, there are ways you can improve your score, like opening an account with a card issuer that shares your credit report with the credit bureaus.
If you’re in the market for a credit-improving card, the Petal® 1 "No Annual Fee" Visa® Credit Card is an excellent option.
If you’re thinking of applying for a balance transfer credit card, you need to consider how a hard inquiry will affect your credit score.
Although the effect will be minor and won’t leave a permanent mark, it’s something to consider if you’re planning to apply for more cards down the line. Additionally, if you’re thinking of applying for a new loan like a mortgage, a drop of even a few points can result in a higher interest rate on the loan.
The card issuer may require you to make the qualifying balance transfer within 45 to 60 days. Make sure you’re aware of the deadline before proceeding.
As with most credit card transactions like a cash advance, you’ll almost certainly have to pay a fee for a balance transfer. Generally, a balance transfer fee ranges between 3% to 5% of the amount. Ensure the introductory balance transfer offer justifies the costs.
Also, consider that once the introductory rate ends, you’ll likely be subject to a variable APR on any remaining balance. Make sure this variable APR isn’t higher than what you’re currently paying.
Before you get your hands on your new balance transfer credit card, the card issuer will consider your credit history before assigning a balance transfer limit. The limit governs how much money you can transfer.
Even if your outstanding balance is more than the available credit, moving some of the debt across could still make sense. However, this will mean incurring a monthly payment on your balance transfer card and on the remaining balance on your existing card.
It’s important to note that you may not be able to transfer balances between accounts you have with the same financial institution.
So, should you go in for a balance transfer?
A balance transfer is worth considering if you qualify for a card with a solid introductory rate and you can commit to paying off the transferred balance in that period.
If done right, a balance transfer can be a significant step towards being debt-free. However, if you’re unable to pay off most of the debt in that period, there are a few alternatives you can consider:
Personal loans may have a lower interest rate or at least have a rate that’s fixed, making it a more affordable option than paying the interest on your current card.
Additionally, you can pre-qualify for one to see how much you can borrow and the interest rate before accepting the offer.
The downside? You may have to put up some assets as collateral.
A balance transfer check is very similar to a standard balance transfer, but instead of making a direct online transfer, you write the check against one card to pay off the balance of the other card.
If you’re overwhelmed by the amount you need to pay, consider making the minimum payment on your card.
It’s not ideal since it won’t help you get out of debt faster, but making the minimum payment each month will avoid damaging your credit score or defaulting on your card while buying you time to find a card with a solid balance transfer rate.
While the minimum monthly payment varies from issuer to issuer, it’s typically about 2% of the outstanding balance.
However, in most circumstances, a standard credit card balance transfer will be a better option than the three alternatives we listed above.
Now, let’s take a look at some attractive balance transfer cards.
If you’re looking for a balance transfer card, these are the ones we recommend:
Balance transfers can be an efficient way to pay off your card balance, provided they’re done right. It makes the most sense if you can pay off the majority of your debt before the new card’s promotional period expires.
However, before putting in a balance transfer request, be sure to read the fine print, understand the terms, and do the math.
If you’d like to find out more about which balance transfer cards might best suit you, check out our list of the top balance transfer cards today.