What is a balance transfer and how can it help you?

If you want to pay down your higher-interest credit card debt, transferring your balance to a card with a lower interest rate could help. But first, learn how balance transfers work and how to make this tactic work for you.

What is a balance transfer?

A balance transfer moves a balance from a credit card with a high annual percentage rate (APR) to one with a lower APR in order to save money on the interest you’ll pay.

Say you have a credit card balance of $5,000 and plan to pay it off in a year using either your high- interest credit card or a card with an introductory or promotional 0% APR on balance transfers for 12 months. The balance transfer offer can save you hundreds of dollars in interest.

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How much could you save?

High-interest card at 15% APR

Total you pay

$5,415

Balance transfer card at 0% intro APR

Total you pay

$5,150

You save

$265

Sources: CreditCards.com, Bankrate, 2019

What should you ask as you consider a balance transfer?

  • When does the promotional rate end? Promotional or introductory new card rates often end 9–21 months after they start. To maximize your savings, determine how long the low rate lasts and how much you can pay off before it ends. Be sure to keep up with your payments, because missing one will likely cancel your promotional rate and you’ll have to start paying interest.
  • What are the up-front fees? When transferring a balance to a credit card, generally you pay a transaction fee of 3–5% of the transferred amount. However, the long-term savings from the lower promotional rate can outweigh the cost of this fee.
  • What happens when the promotional rate expires? Once the introductory or promotional rate ends, the contractual rate kicks in. Going from 0% to 15% in one month can be an unwelcome surprise if you’re not prepared. Read the fine print of the offer before you transfer.
  • What are the various APRs? In general, balance transfers have one APR, while other transactions—purchases, cash advances and fees incurred—have their own interest rates. Knowing all the APRs (and which you’re likely to use) is useful when comparing offers.

How do you complete a balance transfer?

The process isn’t complex, but it helps to know the steps ahead of time:

  1. Note your current balances and the interest rates for each.
  2. Look for a credit card intended for balance transfers, with the right combination of low APR, low (or no) transfer fee and a long introductory period.
  3. Consider how much you’ll need to pay each month in order to pay down your balance before the introductory rate expires.
  4. Apply—preferably online, to get your answer sooner.
  5. If you’re approved, call the new card’s customer service number to transfer the balance from your old card—or you may be able to do this yourself, using your card’s online dashboard. You’ll need the account information for the balance you’re transferring, and the amount that you want to transfer.
  6. Keep paying your old card, because your balance transfer will take some time to process. Don’t stop paying until you confirm that the transfer has gone through.

What else should you know?

Transferring a balance to reduce your interest charges is a smart strategy, but it’s only part of reducing your debt. These four strategies can help you pay off credit card debt fast.

Even if you don’t qualify for a low promotional or lower contract APR, a balance transfer still can help. Combining debts can simplify your life by giving you fewer bills to pay and fewer creditors to deal with. Depending on your debt size and whether you will need more time than a promotional period to pay it off, consolidating with a personal loan might be a better solution for your needs.

And remember: Paying down high-interest debt is smart. Balance transfers are a good step down that path, but it’s important not to incur more debt in the meantime.

Ready to get started transferring your card balance? Bank of America has credit cards that offer low introductory APRs on qualifying balance transfers.

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The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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