Is a Balance Transfer Card Right for You?
0% APR deals are attractive, but they aren’t for everyone.
A credit card touting a promotional balance transfer interest rate deal can be a great tool for paying off costly debt once and for all. By moving debt from a high-interest credit card to one with a long 0% balance transfer APR offer you can save money on interest and actually tackle your credit card debt.
However, balance transfers aren’t ideal for everyone. Whether or not you should apply for a balance transfer card depends on a number of factors, including your current spending habits, the promotional offer, your budget, and your credit.
What Is a Balance Transfer Card?
A balance transfer card is a credit card that gives new cardholders a set period of time to pay off debt transferred from another card at a reduced rate, like 0% APR for 15 months. Some balance transfer cards also cut or lower balance transfer fees as part of the introductory offer, too, which are otherwise standard for balance transfers.
When You Should Consider a Balance Transfer
If some or all of the following descriptions apply to you and your financial situation, consider opening a balance transfer card.
You Qualify for a 0% Balance Transfer APR Offer
If you have good credit, you’ll likely have access to more—and longer—0% balance transfer APR offers. Balance transfer cards are typically marketed to consumers with good credit, which means you should have a credit score of at least 670 (based on FICO standards) before applying.
“Having a solid credit score also gives you the opportunity to qualify for a credit limit that’ll support paying off your debt without having to max it out,” says Logan Allec, a certified public accountant and owner of personal finance website Money Done Right. “Maxing out your credit card puts a damper on your credit score, as 30% of your credit score is pulled from your credit utilization rate.”
Your credit score isn’t the only factor a card issuer will consider when deciding whether or not to approve your application, but it’s an important one. If you decide a balance transfer card is right for you, improve your approval odds by seeking one that fits your credit.
It Will Save You Money, Even After Paying a Transfer Fee
Make sure the card offers you are considering will actually help you save money. If after comparing card APRs and potential fee costs you’ll still come out ahead, opening and using a new balance transfer card is a smart financial decision for you.
Here’s an example of such a comparison:
|Existing card: 20% APR||
New card: 0% balance transfer APR for 12 months
|Balance transfer fee||N/A||3% ($5 minimum) ($240)|
|Debt repayment time||12 months||12 months|
|Total interest + fee cost||$1,600||$240|
|Total amount repaid||$9,600||$8,240 ($1,360 savings)|
You Can Pay Off the Transfer Before the Promotional Period Ends
If the savings look great, consider how the payoff time will impact your budget. For example, if you’re transferring $5,500 to a card offering a 0% APR for 15 months and a 3% balance transfer fee, you’ll need to pay at least $378 each month to pay off the $5,665 total balance.
So, based on how much you plan on transferring and how long your promotional APR period may be, can you afford to make the necessary payment each month?
If the answer is yes, open the card and, “Write down your plan to pay it off within the allotted time period and dedicate yourself to paying the amount every month,” Allec recommends. “You have to focus on paying the debt off.”
Even if you can’t pay off the balance before the promotional period ends, you still may come out ahead. Research by The Balance shows that the average ongoing APR for a balance transfer card is lower than the average APR for all credit cards. You’ll need to look at the rate you’re paying, the ongoing APR for the balance transfer card you’re considering in, and the transfer fee.
When You Should Not Make a Balance Transfer
Even if just one of these scenarios describes you, think twice before applying for a balance transfer card.
You’re Still Accumulating Debt
If you’re overextended and continue to spend more with your credit cards than you can afford to pay off each month, a balance transfer won’t fix the actual problem, or save you money.
“If you are doing a balance transfer because you could not pay off your credit card debt, look at the reason behind the situation,” says Freddie Huynh, vice president of credit risk analytics with Freedom Financial Network. “If you cannot control your spending, you might run up bills on both the old and the new cards.”
Paying Off a Balance Transfer Will Stretch Your Budget Thin
Promotional balance transfer rates don’t last forever. If you open a card to make a transfer and save money on interest, you’ll get the most benefit if you make monthly payments large enough to bring your new card balance back down to zero before the introductory rate period ends. If those payments are too big, you may be tempted to charge more to other credit cards because your budget is strapped.
You Want To Use a New Balance Transfer Card for Purchases
When you open a new card to take advantage of a balance transfer rate offer, it should just be used for the transfer, nothing else.
When you make non-promotional rate purchases or cash advances, only your minimum monthly payment will be applied to your 0% APR transfer balance and the rest will go toward the balance with a higher interest rate. If you’re not careful, this could throw your repayment plan off track.
Worse, the transferred balance will likely mean the interest-free “grace” period for new purchases is not in effect. Many card issuers will refrain from charging interest as long as the account holder pays off new balances on or before the due date—this is known as the grace period. Because the account has an ongoing balance (the one transferred to take advantage of the 0% offer), you will likely be charged interest on those new purchases from the date of purchase, even if you pay new purchase balances on their due date.
How to Choose a Balance Transfer Card
There’s a lot to consider when looking for a new credit card, but especially when choosing a balance transfer card. These are the most important things to watch for when comparing offers.
- Minimum credit score requirements: Is the card for someone with fair, good, or excellent credit? And how does your credit score line up?
- Long 0% balance transfer APR period: 12 or 15 months is a common 0% balance transfer APR offer length, but some cards will give you even more time, like the Citi Simplicity Card, which offers a 0% APR for 18 months on eligible balance transfers.
- How long you have to make transfers under the promotional offer: Many cards require you make transfers shortly after opening the card (i.e. within 60 days) to qualify for the promotional APR. You’ll usually want to make transfers quickly to begin paying down your balances at a lower rate ASAP, but being aware of offer rules is important, too.
- Low balance transfer fee, or promotional fee discounts: Most balance transfer cards will charge a fee for each transfer, typically 3%-5% of the transaction. However, a few cards will waive or reduce that fee for a short period of time. Those cards will help you save even more on debt repayment.
See our roundup of the best balance transfer card offers available right now to help you narrow down your choices.
Balance Transfer Card Alternatives
If after weighing all the factors you’ve decided using a balance transfer card isn’t the best way to easily reduce your debt, there are other options. Here are some to consider.
Personal loans are typically unsecured and issued by a bank, credit union, or online lender with a fixed interest rate and repayment schedule. This type of loan may also give you more time to repay your debt than a balance transfer card offer, as personal loan repayment periods can be as short as one year but as long as seven, depending on the issuer, your credit, and how much you borrow.
“Personal loans can offer rates much lower than what credit cards offer,” Huynh adds. Plus, “Their rigorous payment schedule can be helpful to keep one on a strict schedule to eliminate the debt.”
Much like the best balance transfer cards, you’ll need good credit to qualify for a personal loan with a low APR.
If your credit card debt is truly overwhelming, it may be time to seek professional help. Debt counseling is an alternative to bankruptcy. A credit or debt counselor will review your bills, monthly expenses, income, and debts to help you set up a budget that keeps you on track with repayment. They may also be able to negotiate lower interest rates and monthly payments with your card issuer at the cost of closing your accounts.
This is not something to pursue lightly, but debt settlement may be an option if you are suffering from a severe financial hardship resulting from a job loss, divorce, or high-cost medical treatment. It’s best if you work with your card issuer directly. There are debt settlement companies, but they often ask you to withhold all payments to your creditors to pressure them into accepting a settlement, which will ruin your credit. In the meantime, the settlement firm will want you to make monthly deposits into a savings account to be used to pay your eventual settlement. And there’s no guarantee of success.
Whatever you decide, once your credit card debt is under control, keep it that way.
“Understand why you got into debt in the first place, and be honest with yourself about your ability to break those habits for good,” Allec advises.
myFICO. "What is a FICO Score?" Accessed Jan. 07, 2020.
Logan Allec, Money Done Right. Interview Sept. 20, 2019.
Freddie Huynh, Financial Freedom Network. Interview Sept. 20, 2019.
Consumer Financial Protection Bureau (CFPB). "§ 1026.53 Allocation of Payments." Accessed Jan. 7, 2020.
FTC. "Choosing a Credit Counselor." Accessed Jan. 7, 2020.