What is a balance transfer?

In a Nutshell

A balance transfer is a process that lets you move debt, or a “balance,” from a credit card or loan to a new credit card. This action could save you money and help you simplify your payments — but watch out for fees, limited 0% APR windows, and other potential drawbacks.
Louis DeNicola is a personal finance writer and has written for American Express and Discover. Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

A balance transfer is a process that lets you move debt on a credit card or from a loan to a different credit card.

You’ll still have to repay the debt, but a balance transfer could help you combine multiple debts and payments onto one card. Additionally, in some cases, the balance transfer can reduce the amount of interest you’ll pay, as long as the balance is transferred to a lower-interest card.

Some balance transfer cards offer an introductory 0% interest rate on the transferred balance, giving you several months to make payments without being charged any interest at all.

Above all, it’s important to understand how a balance transfer works before you sign up for one. Sometimes, a balance transfer can backfire and end up costing you money, so be sure that you know the potential risks of balance transfer offers.

How does a balance transfer work?

The actual process of requesting a balance transfer is relatively straightforward as long as you follow a few simple steps, starting with understanding your current balance and interest rate and ending with paying off your debt once the transfer has gone through. When you’re ready to request a balance transfer, two common ways to do this are online or over the phone.

The amount you can transfer will likely be restricted to your card’s credit limit. It’s worth noting that some credit card companies also set a separate maximum amount for balance transfers.

Depending on the method you use and how long it takes the two creditors to process the payments, the balance transfer could take several weeks to complete.

During this period you should keep making payments on time to all of your accounts. Otherwise, you could wind up with a late payment, which would likely mean you have to pay late fees or other penalties.

Which types of debts can I transfer to a credit card?

You may be able to transfer balances from other credit cards and loans, such as a personal, auto or student loan. However, you may not be able to transfer balances between accounts that you have with the same financial institution or credit card company. Every credit card is different, so be sure to check your card’s terms for what types of balances you can transfer.  

Why would someone consider a balance transfer?

A balance transfer might be a good idea if, for example …

  • You have debt with a high interest rate. A balance transfer may save you money by moving debt from a high-interest-rate account to a lower-interest-rate account.
  • You don’t want to juggle multiple payments each month. You may be able to use a balance transfer credit card to combine debts, so you’ll have fewer monthly payments to track and manage.
  • You get a good promotional offer on a balance transfer credit card. An introductory 0% interest rate on balance transfers could help you pay down your debt faster by reducing the amount of interest you’ll pay on the transferred balance.

What are the drawbacks of using a balance transfer?

There could be potential drawbacks to balance transfers, such as fees and deeper debt.

Credit cards may charge a balance transfer fee, often 3% to 5% of the amount you transfer (with a minimum of a few dollars). One way to help figure out if a balance transfer makes sense for you is to weigh how much you might save on interest charges versus the amount you’ll pay in fees with a balance transfer.

Also, if you keep adding new purchases and don’t focus on paying down the balance you transferred, you may find yourself deeper in debt.

Finally, if you transferred your balance to a card with a 0% intro annual percentage rate, keep in mind that once the 0% intro APR period is over you’ll be required to pay interest on the remaining balance. The only definitive way to avoid this is to be sure that you’ve paid off the balance in full during the no-interest window.

Will a balance transfer hurt my credit scores?

Balance transfers can affect your credit scores in both positive and negative ways. Applying for a new credit card will usually result in a hard credit inquiry, which can cause your credit scores to drop a few points. Additionally, the new account will lower your overall average account age, which is one of the factors that can affect your credit scores. That said, increasing your available credit via a new card and adding another account to your credit profile can also positively affect your scores, though you’ll likely see those effects more in the long run.

Tips to make your balance transfer a success

If you think you could benefit from using a balance transfer or are considering a new balance transfer credit card, here are a few tips to keep in mind.

Carefully read the terms of your offer

There are some fine-print details that could be especially important when you’re considering a balance transfer. Here are a few to look for:

  • Your card’s balance transfer fee
  • If there’s an introductory interest rate, how long that intro rate lasts
  • The time frame you’re given to complete a balance transfer that takes advantage of the intro offer
  • Whether there’s an intro rate on purchases as well as balance transfers
  • How much you can transfer

Mark your calendar with relevant dates

A credit card may only offer an intro 0% interest rate on balances that are transferred within a certain period. Also, some cards may waive your balance transfer fee if you complete a transfer within a certain time frame after opening the card.

It can be a lot to keep track of, so it’s a good idea to mark your calendar for the end of the introductory period, and maybe even the middle. These notes can serve as a reminder to stay on track while paying down the debt.

Have a plan for paying off the debt

Create a workable debt repayment plan for how you’ll pay off your balance transfer. If you applied for a card with an introductory interest rate on balance transfers, ideally make your plan to pay off your transferred balance before the end of the intro period. Otherwise you’ll pay interest on any remaining balance. If you weren’t able to transfer all your balances, plan how you’ll pay those down as well.

Consider putting your new card aside if possible

If you’re serious about making faster progress paying off debt, you’ll want to avoid making purchases on the card you transferred a balance to. Be aware, also, that many cards offer a promotional interest rate on balance transfers but not for purchases — in which case interest on those purchases could pile up quickly.

Next steps

Transferring balances could help you consolidate your credit card debt and save money on interest. But to make the most of a balance transfer, take the time to read the fine print, understand the terms and have a plan for paying off the debt. Once you’ve decided a balance transfer might be right for you, compare balance transfer credit cards on Credit Karma.

About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his work on Business Insider, Cheapi… Read more.