Managing your credit card debt is like performing a balancing act — or at least it can feel like one. Between keeping track of due dates, sticking to your budget and trying to minimize interest charges, you may feel as though you’re walking across a tightrope with nothing to catch you if you fall.
So, how do you steady yourself before it’s too late? One way to regain control of your debt is with a balance transfer. But what is that? And is it the right financial move for you?
We’re here to walk you through it — on the ground floor, not the highwire.
What Is a Balance Transfer?
A balance transfer is a process that allows you to move outstanding debt from one credit card to another, usually to an account with better rates and conditions. You can even transfer the remaining balance of a personal, auto or student loan.
By doing this, you can accomplish two things:
- Reduce your monthly interest charges – When interest just keeps piling up, it can significantly slow the process of paying off your debt. But balance transfer credit cards offer a solution: 0% introductory interest rates.
- Consolidate your debt – If you have balances spread across multiple credit cards, trying to keep track of each due date can feel like tightrope walking while juggling. By moving all of your balances into one convenient location, you can combine your payments into one easy-to-remember monthly charge.
What is a balance transfer credit card?
When consolidating debt, most cards allow you to transfer your balance off of or onto them. But balance transfer credit cards specifically offer perks and benefits that encourage those with outstanding debts to move their balances onto this single card.
These perks typically include:
- Low introductory interest rates – While many credit cards attract customers with 0% introductory interest rates on new purchases, balance transfer credit cards offer this deal on balance transfers.
- Longer introductory periods – To provide ample time to pay off remaining debts, balance transfer credit cards will offer low- to no-interest introductory periods that can last anywhere from 12 to 21 months.
- Low or no balance transfer fees – Most banks will charge a balance transfer fee of either 3% or 5% of the total amount of money you want to move. While balance transfer credit cards often boast that they’re on the lower end of this range, some balance transfer cards eliminate the fee altogether. Check out our blog post, “What is a Balance Transfer Fee?” for more information.
How Does a Balance Transfer Work?
If you’ve decided to move forward with this debt consolidation strategy, there are several steps to follow:
- Apply for a balance transfer card – Be sure to research the terms and rates of potential balance transfer cards to find the best one. From there, you’ll have to apply for this new card, usually either online or over the phone. You can also transfer balances to an existing card if it has more favorable terms.
- Make a balance transfer request – You can initiate a balance transfer either on the phone or by writing a transfer check. On the phone, you’ll have to provide your account information and how much debt you want to move onto the card. Some companies may establish a credit limit on the amount of money you can transfer based on your creditworthiness.
- Continue making payments on your old card (for now) – Because a balance transfer can take several weeks to complete, it’s crucial to continue to make any payments on the debt you’re moving until the transfer has been finalized.
It’s important to note that banks don’t usually authorize balance transfers from one internal account to another. For instance, you wouldn’t be able to move your debt from one Bank of America card to another Bank of America card.
Do balance transfers hurt your credit?
In the short term, yes. Transferring a balance to a new credit card can lower your credit score. Here’s why:
- The issuer conducts a hard inquiry – When you apply for a new credit card, the credit card issuer requests a hard inquiry into your credit score. The inquiry alone can lower your credit score by several points.
- You’re opening new credit – One aspect that affects your credit score is the average age of your existing accounts. By adding a new account, you lower this average, which consequently lowers your credit score.
In the long term, however, a well-executed credit card balance transfer should improve your score.
How, exactly? There are several potential positive impacts:
- Lowering your credit utilization ratio – Your credit score includes your credit utilization, the percentage of your total credit in use. Experts recommend keeping this ratio below 30%. By opening a new credit card account, you can better spread your debt across your various accounts, which leaves you with a lower credit utilization percentage.
- Facilitating effective debt repayment – The whole reason you initiated a balance transfer in the first place was to secure a better interest rate. In doing so, you should be able to pay down debts more quickly because you won’t be accumulating interest debt at the same time. Making prompt credit card payments is one of the best ways to improve your credit score.
Can I keep transferring credit card balances?
Technically, you can conduct transfer after transfer, moving money from card to card, until the end of time. However, this won’t help you solve your problem.
The purpose of a balance transfer is to allow you a period of time to pay off your debt without accruing interest. If you simply move your balances around, you’ll never pay them off. Plus, balance transfers typically come with a transfer fee. Constantly shuffling your debt around will cost you more money in the long run.
Features of a Good Balance Transfer Card
When deciding on a balance transfer card, you want to look for:
- The longest 0% interest introductory period — 12 months or more
- The lowest balance transfer fee — 3% or lower
To help maintain healthy finances, it’s best to avoid cards that require an annual fee after the first year.
Is a Balance Transfer a Smart Idea?
Depending on your specific situation, a balance transfer can be a smart financial move when it comes to paying off your debt.
Consider a balance transfer if:
- You have debt with a high interest rate – If you’re struggling to pay off a card with a 24% interest rate, transferring your balance to an interest-free card can give you the opportunity to get on top of your debt. Plus, if you pay off your balance within your 0% interest introductory period, you avoid new interest charges altogether.
- You have debt across multiple credit cards – Unless you’re a spreadsheet savant, keeping track of payments across multiple cards can be an organizational nightmare. By transferring your balances onto a single card, it will be easier to make a timely payment each month.
- You’re offered a promotion from a current issuer – Sometimes, a current account issuer will offer a balance transfer promotion with a period of 0% interest. If the price is right in terms of the transfer fee, choosing to move a balance onto a card you already own eliminates the negative impact a new card can have on your credit score.
What’s the risk of a balance transfer?
While balance transfer cards can take the weight of monthly interest charges off your shoulders, they can also present a temptation for further spending.
This is especially true if your balance transfer card offers an introductory 0% interest rate on new purchases, as well as qualified balance transfers. And since most introductory periods last well over a year, you may feel inclined to spend now, pay later. But doing this will only increase the amount of money you owe.
Tally: Your Key to Credit Card Management
Regardless of your financial situation, Tally is here to lend a hand. With credit card management, automated payments and customized payoff plans, Tally can help you wave goodbye to lingering credit card debt.
Tally members have been able to crush their debt up to two times faster than the average user with a Tally personal line of credit — like transferring your balance to a new card with a lower APR, but Tally manages everything for you.