Balance Transfer Basics

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Last updated on May 18th, 2022

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.

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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 (let’s say the Citi® Double Cash Card). 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. Still, it’s a small amount considering how much the cardholder will save in interest payments.

How to Make a Balance Transfer

Here is a quick breakdown of the balance transfer porcess:

guide to balance transfers infographic guide

Looking for a little more information? Here is a detailed discussion about the balance transfer process, from start to finish:

Make a Plan

Planning should be your first step in any process involving your financial well-being. Before you start the balance transfer process, ask yourself the following questions:

Can you afford to pay down the current credit card balance?

If you are struggling under credit card debt your first course of action should be to contact the lender to discuss forbearance and other options.

What’s your credit score?

Having excellent credit usually entitles you to better (lower) interest rates and larger credit limits. This rule applies to low APR, 0% intro APR, and balance transfer credit cards. If you have excellent credit you might be able to transfer a greater balance than someone with a good credit score.

Are you willing to set up automatic payments?

Setting your credit cards to autopay can help you avoid missing payments and facing a penalty interest rate for up to a year (or more).

Is a balance transfer right for me?

A balance transfer might not make sense if the new card has a short 05 intro APR period, no promotional period, or if the balance transfer fees cost more than you expected.

Apply for a Balance Transfer Credit Card

Applying for a credit card can take as little time as a few minutes. To apply, you’ll need to provide some basic financial and personal information, like full name, mailing (and email) address, Social Security Number (SSN), and income. 

Many issuers provide fields in the application process for making a balance transfer. These fields usually ask if you wish to transfer an existing balance over to the new account. Once that fact is determined, the bank will ask for the financial details of the transaction, including the total balance to transfer over, the card account name/number, and the issuing bank.

Applying for a balance transfer credit card will likely result in a hard inquiry on your credit report. This action temporarily affects your credit score, dropping off your credit report after 24 months – or two years.  Fortunately, adding a new balance transfer card can also lower credit utilization, raising your credit score.

Expect a decision on your balance transfer request quickly. Most banks provide an instant decision on transfer requests. However, banks may delay some decisions due to any number of factors. If you do not receive an immediate decision, keep an eye out for an email or letter from the bank explaining their decision and the reasons.

Transfer the Credit Card Balance

The process of transferring a balance is easy once approved: sit back and let your new bank’s customer service team take care of the work. Make sure to continue to make payments on old credit cards (including the one you are transferring the balance from) to ensure you stay up to date on payments. Missed payments account for 35% of your FICO credit score – so be careful.

Once the new credit card issuer notifies you that the balance transfer is complete, contact your old bank to make sure the correct balance amount was transferred.

Pay Down (or off) the Balance

Once the balance transfers you must make all your payments as scheduled. If you have a credit card with 0% intro APR, make sure you use that promotional period to your advantage to really pay down the new balance.

Missing payments with a 0% intro APR credit card will lead to forfeiture of any promo APR. Penalty APR is a particular interest rate applied for missing your monthly payment and grace period. Typically, a penalty interest rate lasts for at least six months to a year and is around 29.99% but could be higher.

What are the Benefits of a Balance Transfer?

Balance transfers provide significant benefits for cardholders.

Pay Down Debt with 0% Intro APR

Balance transfer credit cards and 0% intro APR are often closely associated. Cards with 0% intro APR allow you to make purchases, balance transfers, or both for a set period without worrying about accruing any interest if they make the minimum payment each billing cycle.

Here are the current longest 0% intro APR offers:

Credit Card Purchase Intro APR Balance Transfer Intro APR

Citi Simplicity® Card
0% for 12 months on Purchases 0% for 21 months on Balance Transfers

Citi® Diamond Preferred® Card
0% for 12 months on Purchases 0% for 21 months on Balance Transfers

Chase Slate Edge
0% for the first 18 months from account opening date 0% for the first 18 months from account opening date

U.S. Bank Visa® Platinum Card
0% for 20 months from account opening date 0% for 20 months on balances transferred within 60 days from account opening

Wells Fargo Reflect Card
0% for 18 months, potential extension of up to 3 months for meeting minimum requirements 0% for 18 months, potential extension of up to 3 months for meeting minimum requirements

Save on Interest

If you have multiple credit cards stacking up balances and spiraling interest rates, a balance transfer card might be a good option to consolidate balances and pay down debt. You can pay off these balances without worrying about interest for an extended period.

Are there Drawbacks to Balance Transfers?

Despite the positives of balance transfers, make sure to consider these potential pitfalls before applying:

Balance Transfer Fees Might Apply

Most balance transfer cards charge a balance transfer fee. The average balance transfer fee with a credit card tends to be $10 or 5% of the total amount transferred, whichever is greater. For example, if you plan to transfer a $5,000 credit card balance to a new 0% APR credit card, you can expect to pay $250 in fees. Always read the terms & conditions of your credit card before transferring a balance to understand better the fees associated.

Interest Rate Might Be Higher After the Promo APR Ends

Most balance transfer and 0% APR credit cards require excellent credit to get the very best interest rates. Generally speaking, the better your credit score, the lower your APR.

Statistics show that the better your credit score, the more likely you are to make balance transfers, as seen below:

Credit Score Balances Transferred % of Balances Transferred
Excellent $38.8 million 72%
Good $13.5 million 25%
Subprime $1.62 million 3%

Before applying for a balance transfer card, make sure you give yourself your best chance at a great rate by boosting your credit score. Otherwise, you might burden yourself with a remaining balance at a higher interest rate than your old credit card.

The Danger of More Available Credit

One of the biggest dangers with 0% intro APR is the ease of falling into a sense of complacency. Applying for and getting a new credit card will increase your overall credit limits. With a lengthy 0% intro APR period, you risk becoming complacent and only making minimum payments on your transferred debt – leading to spiraling costs once the promo rate ends.  

Related Article: The Best Balance Transfer Credit Cards

Featured image by chaitawat/Pixabay
About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. Cory holds academic degrees in both the U.S. and U.K. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.

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