What Is a Balance Transfer?

Balance Transfers Explained

A person checks their credit card balance.
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A balance transfer is a type of credit card transaction that moves a balance from one credit card to another. Typically, the balance being transferred is held on a credit card from a different credit card issuer.

Learn more about balance transfers and how they work.

Definition and Example of Balance Transfer

Moving a balance from one credit card to another is known as a "balance transfer."

Let's say you currently have a $5,000 credit card balance with an 18% APR. You're then approved for a credit card with a 0% introductory APR on balance transfers for 12 months. When you're ready to transfer the balance, let your credit card issuer know the account details. Within a few weeks (sometimes sooner), the old balance is added to your new credit card.

How Does a Balance Transfer Work?

A balance transfer involves paying off one credit card with another. After providing your card issuer with the card issuer, account number, and balance for the balance you want to transfer, your card issuer handles transferring the balance.

Balances you've transferred are separated from other types of credit card balances on your billing statement and may be charged a different interest rate.

Credit card issuers commonly offer a limited-time promotional interest rate for new cardholders who transfer a balance from another credit card. Any promotional rate on a balance transfer must last at least six months, unless you fall behind on payments by 60 days or more.

Here's how a balance transfer works: 

Expanding on the example from above, let’s say you currently have a $5,000 credit card balance with an 18% APR. Monthly interest is making it hard to pay down your balance, so you decide to open a credit card with a 0% APR on balance transfers for 12 months. You can provide your new credit card issuer with the balance transfer details during the application process or after you've been approved.

Once the balance transfer is complete, any balance transfer fees will apply, and you'll start making payments to the new credit card issuer.

Alternatives to Balance Transfers

A balance transfer isn't the only way you can free up a credit card balance or save money on interest.

Personal Loan

You can pay off a credit card balance with a personal loan rather than using a balance transfer.  Loan terms are based on your credit rating and other financial factors, but you can save interest if you qualify for a lower interest rate. If you're approved for a high loan amount, you can consolidate multiple credit card balances into a single monthly payment.

Home Equity Loan or Line of Credit

If you're a homeowner with enough equity in your home, you can open a line of credit or take out a loan to pay off your credit card balance. Interest rates are often lower than other types of loans and credit cards, which allows you to save money on interest. The application process isn't as quick as a personal loan or balance transfer since your home must be appraised first.

Borrowing against your home equity puts you at risk of foreclosure if you can't afford to make your monthly payments.

Balance Transfer Fees

Most credit cards charge a balance transfer fee, typically ranging from 2% to 5% of the balance transfer amount. If you're transferring a balance of $1,000, your balance transfer fee would range between $20 and $50.

Credit cards may set a minimum balance transfer fee of $5 or $10. You'll be charged the greater of 2% to 5% of the balance or the minimum balance transfer fee.

Taking advantage of a balance transfer may help you pay off your balance faster and save money on interest. However, the fees can add up. There are also some other scenarios where transferring a balance may not benefit you.

Pros and Cons of Balance Transfers

Pros
  • You may be able to save money on interest.

  • You can pay off your balance sooner.

Cons
  • The balance transfer fee may offset interest savings.

  • You may need a good credit score to qualify for the best deals.

  • Your credit limit may not be high enough for your existing balance.

  • Promotional interest rates are only temporary.

Pros Explained

  • You may be able to save money on interest: Moving a high-rate balance to a card with a lower interest rate can help you save money on interest. Taking advantage of a 0% promotional offer allows you to save even more.
  • You can pay off your balance sooner: Since more of your monthly payment is applied to the balance rather than finance charges, you can knock out your balance much sooner.

Cons Explained

  • The balance transfer fee may offset interest savings: While you can experience significant savings by moving your balance to a new credit card, the balance transfer can lower the benefit by several hundred dollars.
  • You may need a good credit score to qualify for the best deals: Many balance transfer credit cards require you to have a good or better credit rating. If you have a low credit score, a balance transfer may not be an option.
  • Your credit limit may not be high enough for your existing balance: Credit card issuers consider many factors to set your credit limit. Unfortunately, you won't know if your approved credit limit will be high enough for a full balance transfer until after you're approved and receive your terms.
  • Promotional interest rates are only temporary: That means you may have to increase your monthly payment to pay off your balance before the higher interest rate kicks in.

Requirements for a Balance Transfer

To transfer a balance, you'll need an open credit card that allows balance transfers. When you apply for a new balance transfer credit card, the card issuer will review your application information and credit history to determine whether you qualify and to set your credit limit.

Some new credit card applications allow you to request a balance transfer during the application process. Otherwise, you can contact customer service after you're approved—or for a credit card you currently have open—to initiate the balance transfer. You'll need the account number and the current balance for the transfer you want to make.

Balance transfers can take several days to complete. Continue making the minimum payment on your credit card until the balance transfer is final to avoid a late payment and fee.

You can stop a balance transfer if the credit card issuer only approved part of your balance transfer. This can happen when the credit limit you were approved for wasn't high enough to transfer the full amount.

If you want to cancel the balance transfer, act quickly. You have 10 days from the day your credit card issuer mailed your account opening disclosures to you.

Key Takeaways

  • A balance transfer moves a credit card balance from one credit card to another.
  • Cardholders may save money if the new APR is lower than the previous APR.
  • A balance transfer fee may be charged for the transaction.