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What is a balance transfer and how does it work?

Balance transfers can be a helpful credit card tool for paying down higher interest debt.

What is a balance transfer?

A balance transfer moves a balance from a credit card or loan to another credit card. Transferring balances with a higher annual percentage rate (APR) to a card with a lower APR can save you money on the interest you’ll pay. Balance transfers can also simplify bills by consolidating several balances with different creditors onto one card with one payment.

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 offer on balance transfers for 12 months. The balance transfer offer can save you hundreds of dollars in interest and help you pay down credit card debt faster.

Savings on credit card interest
Total you pay
High-interest card at 15% APR $5,415
Balance transfer card at 0% intro APR $5,150
You save $265
Sources: CreditCards.com, Bankrate, 2019

Is a balance transfer worth it? 4 questions to consider

  • 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 often 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 on any remaining unpaid balance. Going from 0% to 15% in one month can cause your agreed minimum payment to increase, which may 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 or checks—have their own interest rates. Knowing all the APRs and noting which transaction types a promotional or introductory rate offer applies to (and which one you’re likely to use) is important 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 promotional period.
  3. Consider how much you’ll need to pay each month in order to pay down your balance before the introductory rate expires. This amount will typically be larger than the required minimum monthly payment the creditor will bill you. Try using a balance transfer savings calculator to figure out the right payment amount.
  4. For a new credit card introductory offer, many applications include the option to request the balance transfer within the application. For a balance transfer offer on a card you may already have, the lender will likely guide you to the quickest and easiest way to request it. Many lenders allow you to see your offers and request the balance transfer on their online banking or mobile app.
  5. If you’re approved, use online or mobile banking or call the new card’s customer service number to transfer the balance from your old card. You’ll need the full account numbers for each balance you plan to pay down and the current balances, and sometimes you may need to know the payment billing address for the creditor as well.
  6. Balance transfers can take a couple days or up to two weeks when requested with a new card application, so it’s important to keep paying at least the minimum payment due to your creditors until you see the balance transfer you requested post as a payment on those accounts.

What else should you know?

Transferring a balance to reduce your interest charges can be a smart move, but it’s only one of several strategies for reducing your debt.

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.

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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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