A balance transfer is a way to move your debt from one lender to another lender at a lower APR. This can be a great option if you want to pay less in interest on your credit card debt while you pay it down.
A balance transfer credit card is any credit card that lets you transfer balances from other accounts. In many cases balance transfer credit cards offer an introductory 0% APR on their balance for a limited time, usually between 6 and 21 months.
How Do Credit Card Balance Transfers Work?
Balance transfers work by two or more lenders communicating to transfer balances from one or more credit cards to another credit card. The process of a balance transfer starts with you applying for a new credit card or using a balance transfer offer on an existing card.
Once you’ve initiated the balance transfer and provided the necessary information the lenders will start the process on their end. This process can take several weeks so be prepared to wait.
How to Choose a Balance Transfer Credit Card
There are a few things you’ll want to look for when searching for a balance transfer credit card. The main things you should be on the lookout for are ways to save as much money as possible.
- 0% APR
- No annual fee
- No balance transfer fee
The 0% APR is usually the main focus, as well as the length of the introductory period. The longer the introductory period, the more money you save on interest. Choosing a credit card without an annual fee is also an important feature to look for to ensure your savings. Lastly, the least amount you can pay in balance transfer fees, the better.
How to Do a Credit Card Balance Transfer
The first step in initiating a balance transfer is to apply for a new credit card, or use an existing balance transfer offer. If you’re applying for a new credit card choose one with an introductory 0% APR balance transfer rate. Be mindful, though, that you’ll usually be required to pay a balance transfer fee, which is generally around 3 to 5%.
Once you’ve started the application process you’ll need to initiate the balance transfer by providing information about the debt you’re moving. This includes the issuer name, amount, and other account information. You can transfer one credit card or multiple depending on the amount you were approved for.
You’ll have to wait for the balance transfer to process, which can take two weeks or longer. Once the transfer has been processed the next step is to utilize the 0% APR and start paying down your balances.
Pros and Cons of Balance Transfers
There are many pros and cons of doing a balance transfer.
One of the main pros is that you’ll have either a low or 0% introductory APR on your balance for a time, ranging between 6 and 21 months. This means you’ll be able to take charge of your debt without having to pay interest. You may even be able to find a balance transfer credit card that offers rewards. However, you won’t typically earn rewards on the transfer itself.
The con of balance transfers is that you’ll still be required to pay down that debt monthly and meet your minimum payment. Additionally, you’ll usually have a balance transfer fee of 3 to 5% when you initially transfer your balance. So, for example, if you’re transferring $5,000 and have a 5% fee, you’re paying $250 in fees.
Should I Do a Balance Transfer?
Whether you should do a balance transfer or not depends on your situation. Do you only have a few thousand in credit card debt that you’re wanting to transfer? If so, a balance transfer may be a great option for you. However if you have tens of thousands in credit card debt, a personal loan might be a better option.
You should also be mindful of the fees you’ll pay to do a balance transfer. Weigh the pros and cons of those fees and calculate when you expect to pay off the debt and how much interest you might pay if you don’t do a balance transfer. If you’ll pay more in interest than in transfer fees, a balance transfer might be the most cost effective option.
How Long Does a Credit Card Balance Transfer Take?
A balance transfer can take two or more weeks to process.
Do Balance Transfers Hurt Your Credit?
Balance transfers can be both good and bad for your credit. If you’re opening a new credit card that will cause a hard inquiry on your credit report, which may temporarily lower your credit score. However, you’ll also be increasing your total available credit by opening a new credit card, which may boost your credit score.
If you’re utilizing an offer on an existing card you’re just transferring the balances plus any applicable balance transfer fees. But by doing so you’re paying off a credit card, which may provide a boost to your score. Overall, whether a balance transfer hurts or helps your credit depends on several factors. The main goal is to not use the credit card(s) you’re transferring and to pay off your debt.
Does a Balance Transfer Count as a Purchase?
A balance transfer does not count as a purchase. That means you won’t earn rewards on your transfer. However, any purchases made in addition to the transfer will earn rewards if you opened a rewards credit card.
Can You Balance Transfer a Loan to a Credit Card?
Depending on your card issuer, you may be able to transfer the balance of a personal loan to a credit card. Some lenders allow you to transfer loan balances to a credit card and others don’t. It’s best to check with the credit card lender if they allow loan transfers or not.