How to Do a Balance Transfer on a Credit Card

Credit Cards

If you have a credit card with a large balance and a high interest rate, it may be wise to transfer that debt to a better credit card. Even if you have a low-interest rate credit card, you may be able to find a better one.

Alternatively, if you have multiple smaller credit cards with different payment dates, you may prefer to make one payment to help organize your finances. It’s likely, if your credit isn’t bad, that you’ve even received a few balance transfer offers in the mail.

holding a credit card

What is a credit card balance transfer?

A balance transfer is moving the balance of one credit card to another. This is typically done to take advantage of lower interest rates or promotional offers of the new card.

Balance transfers can help reduce the amount of interest you pay by transferring high-interest balances to a card with a lower rate. However, not all offers are created equal, and some may even cost you more in the end.

Late fees, balance transfer fees, time limits, and a whole host of potential fine print can quickly get out of hand. Keep reading to learn how to distinguish the good deals from the bad ones.

Unveiling the Truth About 0% APR Balance Transfer Offers

The lure of a 0% APR balance transfer credit card is strong, especially if you’re aiming to reduce your monthly payments or cut down the overall interest you’re paying. The prospect of not accruing interest on your credit card debt, even temporarily, can feel like hitting the jackpot.

Yet, it’s essential to peel back the layers of these offers to understand what you’re really signing up for. Remember, banks are in the business of making profits, not charity. While they do put out enticing offers to attract customers, their ultimate goal is to benefit financially.

The Catch: Balance Transfer Fees

Most borrowers manage to pay off their balance within the 0% APR window, so banks have added fees to maintain their profit margins. The most common is the balance transfer fee. This fee usually hovers around 3% but can climb up to 5% of the transferred amount. It’s tacked onto your total transferred debt and remains payable even if you clear your card’s balance before the promotional period ends.

The Often-Overlooked Annual Fees

Beyond the balance transfer fee, another cost to be aware of is the annual fee charged by many credit cards. This fee applies simply for the privilege of holding an account, and it’s not exclusive to balance transfer cards. While some offers might waive this fee initially, not all do.

The average annual fee for credit cards is around $58. When you combine this with the balance transfer fee, the total cost can quickly eat into, or even negate, the savings you might have made from the lower interest rate. Therefore, it’s crucial to thoroughly review the terms and conditions of any offer. What’s seemingly a great deal at first glance could have hidden costs that diminish its value.

Negotiating Lower Balance Transfer Fees

Understanding how to negotiate fees can significantly alter your approach to credit card management. Gone are the days when banks freely offered balance transfer cards with negligible fees.

The landscape shifted dramatically post-2009, with financial regulations tightening up the fee structures. However, this doesn’t spell the end of getting a good deal. With a bit of know-how and negotiation, you can potentially reduce or even eliminate balance transfer fees.

Knowing When to Pick Up the Phone

The first step in your fee-reduction journey is to get in touch with your credit card issuer. Don’t underestimate the power of a simple phone call. When you’re on the hunt for a better rate, expressing your needs directly to the company can open doors you didn’t know existed. Credit card companies, like any business, value their customers, especially those with a solid track record.

Leverage Your Customer History

If you’ve been a loyal customer, consistently making timely payments, use this history to your advantage. Companies often have more flexibility than they initially reveal, especially for their reliable customers. Your steady payment history isn’t just a sign of good financial habits; it’s a bargaining chip in discussions about fees. When negotiating, highlight your positive relationship with the company. It could be your ticket to reduced or waived transfer fees.

The Art of Negotiation

Remember, negotiating is an art. Approach the conversation with confidence, but also be ready to listen. Understand that while not every negotiation will lead to waived fees, you might still walk away with a significantly reduced rate. It’s all about finding that middle ground where both you and the credit card company feel valued and respected.

Timing Your Balance Transfer Wisely

Racking up credit card debt can happen to the best of us, whether you’re a credit card newbie who’s splurged a bit too much or someone facing unexpected financial challenges. Often, we find ourselves staring at a balance that’s uncomfortably high.

Deciding if a balance transfer credit card suits your situation isn’t a straightforward equation. It’s more about evaluating your current financial scenario. Key factors to consider are the interest rates you’re grappling with and the timeline for clearing your debt.

Tackling High-Interest Balances

A prime candidate for a balance transfer is a hefty balance coupled with a high interest rate. This combination is like quicksand for your finances, pulling you deeper into debt. The allure of balance transfer offers, often dangling the carrot of 0% interest for periods ranging from 6 to 18 months, is hard to resist.

But here’s the catch: once the honeymoon phase of low or no interest ends, the regular interest rates can hit hard. Imagine transferring $1,000 to a card with a 0% introductory rate for a year. If you only manage to pay half of that during the promo period, the remaining balance will be subject to the standard interest rate, potentially adding a significant amount to your debt.

The Trap of Deferred Interest

A common pitfall is confusing deferred-interest offers with genuine 0% interest deals. They might look similar at a glance, but they operate differently. With deferred interest, if you haven’t cleared the entire transferred amount by the end of the promotional period, you get hit with interest on the original transferred amount – not just on the remaining balance.

For example, say you shift $1,000 to a card with deferred interest for 12 months. You pay off all but $1 of that amount. If the standard interest rate is 15%, you could suddenly owe interest on the entire $1,000, not just the $1 left unpaid. This can significantly outweigh any benefits you gained by transferring the balance initially.

So, when you’re contemplating a balance transfer, it’s vital to look beyond the surface. Factor in the potential costs post-introductory period, including transfer fees and annual fees. This comprehensive view will help you make a decision that truly benefits your financial health in the long run.

Managing Monthly Payments in 0% Balance Transfers

If you transfer a balance to a credit card with no APR for a given amount of time, that means you don’t accrue interest during the promotional period. It does not, however, mean that you don’t have to make any payments. Like all credit cards, minimum monthly payments are required.

This amount is typically around 4%, though it may vary depending on your bank. The tricky part is that if the credit card company receives a late payment, even by one day in some cases, they may cancel your introductory APR. From that point on, you’ll be required to pay interest on the entire amount and the introductory period is over.

In addition to raising your interest rates and late fees, it may result in lowering your credit scores. This can affect interest rates on other credit cards and loans, and even affect your ability to buy a house, rent an apartment, or buy a car. It’s important, especially with introductory balance transfer card offers, to pay all your bills on time.

Paying Off the Entire Amount

In a best-case scenario, you’d sign up for a balance transfer card with an 0% intro APR with a high enough credit limit. You’d then transfer the balance of one or more credit cards with a higher rate and pay off the entire amount before the promotion expires. This requires you to pay much more than the average 4% minimum payment you are required to make but takes the most advantage of the balance transfer.

Let’s look at an example in which you transfer a credit card balance of $1,500 from a new card with an 18.9% interest rate to a card with a 0% intro APR for 18 months. It would take you over seven years to pay off the card at an 18.9% rate if you only made the minimum payments. Plus, you’d pay over $800 in interest.

Switching to a new card with no interest for 18 months is a smart way to save money. However, if you still just make the minimum payment, it’ll take over five years to reach a zero balance. Plus, that doesn’t include the balance transfer fee or annual fee you have to pay.

If you were to make 18 equal payments in this scenario, your monthly bill would be $83.33. Even with a 3% balance transfer fee and an annual fee, the amount would be considerably less than paying off the original card in the same period.

Options When 0% Balance Transfer Deals Are Scarce

A zero percent promotion is not the only reason to transfer your credit balance. Branded store credit cards like clothing or furniture stores can carry much higher interest rates than traditional bank credit cards. Most branded cards carry interest rates ranging from 21% to 33%.

Moving this debt to a traditional credit card can lower your interest rate significantly, sometimes to as low as 13%. You’ll likely still be required to pay a balance transfer fee, but remember, that is sometimes negotiable. If the bank knows you’ll have to pay interest on the amount for the duration of the loan, it’ll be more likely to consider reducing or eliminating the fee.

Another reason some people choose to balance transfer is to reduce the number of institutions to whom they owe money. Tracking payment dates on multiple credit cards can lead to late payments, penalties, and fees.

Moving multiple balances to one account can take the stress out of paying multiple bills. Even if you don’t save much in interest, it’s something to consider when thinking about a balance transfer.

The Effect of Balance Transfers on Your Credit Scores

Transferring your balance to a 0% interest or low interest credit card will most likely not lower your credit scores. You may take a temporary hit, but in the long run, it will actually increase it.

Credit scoring models like FICO use numerous factors to determine your creditworthiness. One of those factors is how much available credit you have.

If you open a new credit card and transfer the balance, you likely still have an open line of credit with the old account. As long as you don’t close the other account, it will remain on your credit report. It will have a positive effect on your credit score as it lowers your credit utilization ratio.

However, credit card issuers may start to worry if you initiate several balance transfers on the same card. You may want to consider opening another 0% APR balance transfer card with if you can’t repay your entire transferred balance before the introductory period expires. That way, you get another 12 months to pay it off.

Frequently Asked Questions

How does a balance transfer work?

To do a balance transfer, you request the transfer from the new card issuer, and they will pay off the balance of your old card. You will then owe the new card issuer the same balance amount, but at a potentially lower interest rate. You will also be responsible for any fees associated with the transaction.

What is a balance transfer credit card?

A balance transfer credit card is a type of credit card that allows you to transfer the balance of one credit card to another. A balance transfer with this type of card usually requires a one-time fee, and there is generally a promotional period of 0% interest on the balance transferred. After the promotional period is over, a regular interest rate will apply.

What are the benefits of a balance transfer card?

The main benefit of a balance transfer card is that it can help you pay off your debt faster by taking advantage of the lower interest rate. Additionally, balance transfer cards can help you save money on interest charges and help you manage your debt more effectively.

Is there a fee for balance transfer credit cards?

Most balance transfer cards will have a fee associated with them. This fee is typically a percentage of the balance you are transferring, and it can range from 0% to 3%.

Bottom Line

Initiating a balance transfer from one credit card to another, especially one with a low transfer rate, can significantly reduce your payments. It can help you pay off your debts faster and can even eliminate accruing any interest as long as you pay the debt within the allotted time.

However, it’s wise to shop around and even more important to read the terms and conditions. A 6 or 12-month plan may be more advantageous than an 18-month plan if the fees are much lower.

Don’t just pick a card with the longest APR. Instead, make sure you know exactly what you’ll be paying over the entirety of the program. Avoid these pitfalls, and you could save yourself a ton of money. But choose a plan that’s not right for you, and you could end up paying a lot more than you ever expected.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.