How does a balance transfer work?

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In a Nutshell

A credit card balance transfer involves moving debt from one credit card to another. It’s a strategy that can help you save money and pay off debt faster — if you’re careful about details like fees, interest rates and restrictions on transfer amounts.

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A balance transfer can save you money by allowing you to move existing debt on a higher-interest credit card to a credit card with a lower interest rate.

Transferring a balance doesn’t eliminate the debt — instead, moving the balance to a lower-interest credit card can help you save on interest and even pay off the debt more quickly. Transferring multiple credit card balances to a single, lower-interest card may also simplify your payments.

But watch out — fees, interest rates and other details (such as how much you can transfer and how long a balance transfer takes) can vary. Here’s how a balance transfer works.


The essentials

A balance transfer isn’t a get-out-of-debt-free card. Balance transfers typically come with fees, and you’ll likely have to pay interest on whatever balance you transfer.

Some card issuers will offer 0% intro APR on balance transfers for a specified period of time to encourage balance transfers. The catch? If you transfer a balance and are still carrying a balance when the introductory 0% APR period ends, you will have to start paying interest on the remaining balance. If you want to avoid this, make a plan to pay off your credit card balance during the no-interest intro period.

How much can you transfer?

A balance transfer and any fees charged for it usually count toward your credit card limit. And many issuers will only let you transfer a balance up to a certain percentage of that limit.

For example, let’s say your balance transfer credit card has an introductory 0% APR on balance transfers and a credit limit of $10,000. If that card only allows you to transfer a balance of up to 75% of the credit limit, including a 5% fee for the transfer, what’s the most you could transfer?

At first, you might think you can transfer $7,500, which is 75% of $10,000. But add in the balance transfer fee, which would equal $375 — it pushes you over the transfer limit. So you’d have to subtract that fee from the limit first, which in this scenario would leave you transferring $7,125.

The costs of a balance transfer

You probably want to transfer a balance to save money — not spend more. Here’s some tips to save on fees and interest on a balance transfer.

Pick a card that waives the balance transfer fee

Consider a balance transfer card that has an intro $0 balance transfer fee for a certain time frame, or waives the fee altogether. Pay attention to when you’ll need to request the balance transfers to take advantage of the intro $0 balance transfer fee offer — it’s typically within the first couple of months.

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Pay attention to different APRs

Look into cards that offer a 0% introductory interest rate period on balance transfers (intro offers typically range from 12 to 21 months). But be aware that you’ll get a different APR on balance transfers after the intro period ends. For example, say your card offers an intro 0% APR on balance transfers for 18 months from account opening. But after 18 months, your balance transfer APR changes, to a variable 16% APR on balance transfers. You’ll want to make sure to pay off your balance transfer before the intro period ends, otherwise that 16% APR will kick in for any remaining balance. This could negate the savings from transferring your balance if you do not pay if off during the introductory period.

There’s another type of APR you should know about: penalty APRs. If you miss payments, the issuer may charge a penalty APR. And take note: As part of the penalty for late or missed payments during an intro APR period, the issuer may also cancel your 0% intro APR offer.

Take a look at the card’s terms and conditions before applying for the card and transferring your balance, so that you’re prepared for the different APRs that may apply to your balance and when they’d kick in.

Be cautious when charging new payments to your balance transfer card

A card may offer a 0% intro APR to help you pay off a balance transfer, but if the intro 0% APR doesn’t apply to purchases you’ll have a different rate for new purchases you charge to the card. Weigh any potential rewards you can earn by making purchases on the card with how much interest you’ll pay on those purchases.

Set alerts to make monthly payments on time

Even if your card charges an intro 0% APR on balance transfers and purchases, you should still make at least the minimum monthly payment on time. Set alerts to help you remember these.

But keep in mind that to pay off your transferred balance before the intro no-interest period ends, you may need to pay more than the minimum each month.

Continue making payments while you wait

Something else to consider: Requesting a transfer can be a speedy process, but in some cases, it may take several weeks to complete.

The amount of time can depend on the card issuer. That’s why it’s important to keep making at least the minimum payments on your original card on time, until the transfer appears on that account.


Bottom line

A balance transfer can be a good option to consolidate your credit card debt and pay it off more quickly. But pay close attention to the terms.

APRs, fees, the amount you can transfer and other terms can differ from card to card. Before you apply for a new card, check the terms and conditions for fees, APRs and any restrictions on transfers. Look for a card that can make a balance transfer work for you.

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