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Balance Transfer Basics

Balance Transfer Basics: What Is a Balance Transfer?

Need to know the balance transfer basics? A credit card balance transfer is designed to help cardholders consolidate their existing credit card debt onto a single card with a much lower interest rate. Having multiple credit cards with outstanding balances can be quite stressful with rising interest rates, multiple sets of fees, and the potential of default. A credit card balance transfer offer with a lengthy zero-interest introductory period allows cardholders to avoid excessive interest charges and helps put them on a more stable financial footing. One major point to consider when looking for a credit card to transfer balances to is what the card’s credit limit is, because if the card you’re transferring your debt to has a credit limit of $5,000 and the sum of your credit card debts exceeds this you’ll still only be able to put $5,000 on that card.

Are Balance Transfers Worth It?

Let’s say a cardholder has two credit cards with rising balances: Card A with a balance of $5,000 at an APR of 18%, and Card B with a balance of $1,500 at an APR of 24%. The cardholder previously was making a monthly payment of $200 to Card A, and $75 a month to Card B. Fed up with throwing money at the rising interest charges, the cardholder decides to apply for a credit card with a 0% introductory interest rate for 18 months on balance transfers. If the cardholder with the new balance transfer card pays the same $275 they were paying for Card A and B it will take them 24 months to pay off the balance, and they’ll save $1486.26 in interest. The cardholder can pay $371.94 per month for the 18-month 0% APR promotional period and they’ll save $1553.77 in interest. Card A and B’s balance transfer fees will total $195, but it’s a small amount considering how much the cardholder will save in interest payments. Consolidating credit cards onto a balance transfer credit card can save cardholders thousands of dollars if they are paid in full during their 0% introductory promotional period.

What’s an Alternative to Balance Transfers?

Cardholders worried about falling behind on multiple credit card payments would surely consider using a 0% APR credit card for a balance transfer. But if they also have outstanding student loan debt and a car loan as well it may be prudent to consider debt consolidation programs, which will combine all their debts into one payment with a lower interest rate. Debt consolidation should be considered if a borrower’s debt doesn’t exceed 50% of their income, they curb their excessive spending habits, and they have a plan for paying it off. A debt consolidation loan can help borrowers pay off their outstanding debt if they adjust their spending habits and make all their payments on time. Debt consolidation isn’t for everyone though, especially for borrowers with poor spending habits or people who have so much debt that reduced payments won’t help them pay it off.

Other Cards to Consider Instead of Balance Transfer Credit Cards:

Upgrade Card

Credit Line Up to $20,000

Upgrade Card
  • Regular Purchase APR 6.99%-29.99% variable based on creditworthiness and the Prime Rate
  • Annual Fee None
  • Credit Needed Excellent , Good , Fair
  • Processing Network Visa
Best Benefits
  • Choose the Upgrade card with a personal credit line instead of a credit card and enjoy predictable payments on lines from $500-$20,000
  • No Fees – No annual fees and no fees to use your card
  • Quick and easy application – find out if you qualify in minutes
  • Checking your line won’t hurt your credit score
  • Free access to credit monitoring, alerts and features to help you understand your credit
  • Use wherever Visa is accepted. (cannot be used at an ATM)
Rates & Fees
  • Regular Purchase APR: 6.99%-29.99% variable based on creditworthiness and the Prime Rate

Add cards to start comparing.


How Does a Transfer Affect My Credit Score?

Cardholders hesitant about applying for balance transfer credit cards because of how it may affect their credit scores don’t have to worry about trying to transfer balances if they have a plan in place to pay it off. The whole purpose of applying for a balance transfer in the first place is to reduce interest charges and to contain spiraling balances, which if left uncontained will be negatively reflected in a credit report. Something cardholders need to keep in mind when making a balance transfer to a new card is what they plan on doing with their newly paid-off cards. With their old cards showing a balance of $0 it may be tempting to cancel them, but cardholders must consider their credit utilization ratio which is the total amount of their revolving credit they’re using divided by how much revolving credit they have available. If cardholders cancel their old cards their credit utilization ratio will go up, and it will have a negative effect on their credit scores as their credit utilization ratio can affect up to 30% of their credit score.

About: Allan

Allan is the Managing Editor at In addition to leading a robust team of writers in the pursuit of thorough credit cards expertise, he is an avid fan of films, food, traveling, and Star Wars.