Understanding Balance Transfer Pros and Cons (2024)

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate credit cards to write unbiased product reviews.

Introduction to Balance Transfers

What Is a Balance Transfer?

Balance transfers can be an excellent debt-elimination tool when used correctly. By consolidating credit card debt from one card to another, you can take advantage of a promotional 0% APR or lower interest rate and get out of debt faster. However, there are some drawbacks associated with balance transfers, including transfer fees and the potential for increased debt if your balance isn't paid in full by the end of the promotional period.

How Balance Transfers Work

Balance transfers involve transferring an outstanding balance from one credit card to another card, typically one with a lower interest rate or a promotional 0% APR offer.

It's essential to understand the terms, such as transfer fees and the duration of the low-interest period, to ensure it actually makes sense for your financial situation. Knowing when and how to manage debt with balance transfers can help you pay down debt faster and save on interest charges in the long run.

Pros of Balance Transfers

There are many advantages to balance transfer cards. They include consolidating debt, saving on interest, and improving your credit score. Consolidating debt can make it easier to keep track of payments and reduce the interest you pay overall. Additionally, balance transfers can help improve your credit score by lowering your debt-to-credit ratio. Finally, balance transfers can reduce high-interest rates on existing debts and help you save money in the long run.

Potential for Lower Interest Rates

Balance transfers are great if you need time to pay off debt without incurring interest fees. With the average credit card interest rate being over 20%, a balance transfer can save you a lot of money on interest.

Years ago, I took on some unexpected debt but was able to save hundreds of dollars over a year by taking advantage of a Citi credit card balance transfer offer. Instead of paying an APR of over 25%, I paid a 3% transfer fee and avoided interest for the next 12 months. In my case, it worked out favorably, but that's because I made more than the minimum payment every month, paying off the full balance before the 12-month promotional period ended.

Consolidating Multiple Debts

0% balance transfer credit cards are a great way to consolidate debt because they allow you to move all of your debt onto one card with a 0% interest rate. This means you can pay off your debt without incurring any additional interest charges, saving you a lot of money. Additionally, many 0% APR credit cardsoffer an intro period for up to 21 months, giving you plenty of time to pay off your debt without worrying about accruing more interest.

Improve Your Credit Score

Completing a balance transfer can improve your credit score by lowering your credit utilization ratio. Since you won't pay interest, your balance will only drop as you make your monthly payments (ideally more than the minimum required).

A lower balance relative to your credit limit lowers your utilization rate, thus improving your credit score. Utilization makes up about 30% of your credit score, which is pretty substantial.

Cons of Balance Transfers

While 0% APR balance transfer offers can be tempting, they often come with fees and costs that make them a bad deal. They can also trap you in debt. You might feel tempted to stick to the minimum monthly payment, only to end up barely making a dent in your balance when the promotion period is up. Lastly, most 0% APR balance transfer offers are limited to those with good credit or better, so not everyone will qualify for them.

Balance Transfer Fees

Most credit card companies charge a balance transfer fee of 3% to 5% of the amount transferred. This means that you'll pay $30 to $50 for every $1,000 transferred. Depending on how long your 0% APR offer is for and how high your balance is, this could be a good or bad deal. For example, if your credit card carries a 23% APR, you'll pay $230 interest on an average $1,000 daily balance over a year. A 0% balance transfer APR with a 3-5% fee makes sense in this case.

However, if you can pay your $1,000 balance off within a month or two, you'll incur $19 to $38 in credit card interest. In this scenario, paying the interest might be more favorable than incurring $35 to $50 in balance transfer fees.

Higher Interest Rates After Introductory Period

Most balance transfer offers are only good for a limited time. If you don't pay off your total balance before the end of the promotional period, you may incur interest on the remaining balance at a high APR. It's easy to fall into this trap by only making the minimum monthly payment and thinking you have plenty of time to pay the rest at the end of the promotional period.

You can avoid this obstacle by sticking to a plan to pay off your total balance. Divide your balance by the number of intro APR months to determine the payment you'll need to make every month. Setting up autopay can keep you on track to pay your card off on time and avoid incurring interest.

Limited Availability

One major downside to 0% balance transfers is that they're generally limited to consumers with good credit. If you have existing debt that makes up a high percentage of your overall credit limit, you may not qualify for a promotional balance transfer APR.

Banks don't want to risk extending credit to consumers already saddled with debt, creating a catch-22 for cash-strapped customers looking to consolidate debt.

Making a Balance Transfer Work for You

What to Know About Balance Transfer Credit Cards

Balance transfers can be a great way to save money on interest payments and consolidate debt, but they're not always worth it. Depending on the balance transfer terms, you may be charged a fee of up to 5%. Additionally, if you don't pay off the balance transfer within the promotional period, you may end up paying a high interest rate.

It's easy to fall into the trap of making just the minimum payment and getting no closer to paying off your balance when the promotional period ends. It's important to consider all of these factors before deciding whether or not a balance transfer is worth it for you.

Who Should Consider Intro 0% APR Offers?

Anyone looking to make a large purchase (like buying an engagement ring with a credit card) or consolidate debt should consider 0% APR offers. These offers can provide a great way to save money on interest and pay off the balance faster.

However, it is important to understand the terms of the offer before signing up, as some offers may have restrictions that could limit your ability to take advantage of the offer. Additionally, it is wise to make sure you can pay off the balance before the promotional period ends, as any remaining balance will be subject to regular interest rates.

Who Shouldn't Consider Intro 0% APR Offers?

0% intro APR offers should only be considered by those who are able to pay off the balance within the promotional period. If the balance is not paid off before the promotional period ends, any remaining balance will begin to accrue interest at a high rate.

Additionally, those with poor credit scores should avoid 0% APR offers, as they may be denied due to their credit history.

Popular Intro 0% APR Balance Transfer Credit Card Offers

The best balance transfer credit card for you depends on how long of a promotional period you're looking for, and whether or not you want to earn rewards for spending on your new credit card. Some cards extend their 0% APR offers to both balance transfers and new purchases, so that's another factor to consider.

Great rewards credit cards with balance transfer offers include:

Wells Fargo Active Cash® Card: 0% intro APR on purchases and qualifying balance transfers for 12 months from account opening, then a 20.24%, 25.24%, or 29.99% variable APR

Chase Freedom Unlimited®: 0% intro APR on purchases and balance transfers for the first 15 months, then a 20.49% - 29.24% Variable APR

Blue Cash Everyday® Card from American Express: 0% intro APR on purchases and balance transfers for 15 months from account opening, then a 19.24% - 29.99% Variable APR

You don't necessarily have to get a new credit card to receive a balance transfer offer. Many banks will target existing customers in good standing with 0% balance transfer offers. Citi often sends out balance transfer offers with attractive 0% intro APR terms. These checks function just like a credit card balance transfer, except you can make the check out to yourself, deposit it into your checking account, and use it to pay off a credit card balance.

To receive promotions like these, you'll want to opt in to receive targeted promotions from your bank. Once you agree to receive email and mail communications, you might receive balance transfer offers if you remain in good standing with the bank.

FAQs