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.Balance transfer card issuers will offer an introductory 0% APR on balance transfers for a specified period of time to encourage balance transfers.
But there’s a catch: if you transfer a balance and are still carrying a balance when the 0% intro 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 could transfer £7,500, which is 75% of £10,000. But add in the balance transfer fee, which would equal £375 — and 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.
What should I do if I don’t get a high enough credit limit to transfer all my credit card debt?
You may get approved for a balance transfer credit card only to find out the credit limit is lower than you’d hoped. In this case, we recommend transferring what you can — but plan for how you’re going to pay down the debt remaining on your high-interest card, in addition to the balance you transferred. After making regular, on-time payments on the new card, you might be able to ask for a higher limit.
Some card issuers on Credit Karma’s marketplace will show credit limits. You can search for a specific limit in order to be sure you’ll get the amount you need.
Alternatively, if you don’t think you’ll be approved for a card with a high enough credit limit, you may want to consider a personal loan.
The costs of a balance transfer
You probably want to transfer a balance to save money — not spend more. Here are some tips to save on fees and interest on a balance transfer.
Pay attention to the APR conditions
Balance transfers offer a 0% introductory interest rate period on balance transfers (intro offers can typically range from 9 months to 30 months, depending on eligibility). But be aware that you’ll get a different APR on your balance or any subsequent 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 29% APR on balance transfers. You’ll want to make sure to pay off your balance transfer before the intro period ends, otherwise that 29% APR will kick in for any remaining balance. This could wipe out the savings from transferring your balance if you don’t pay it all off during the intro period.
Take care to avoid making any late or missed payments during an intro APR period. If you don’t meet the card issuer’s terms and conditions and make your payments on time, there’s a risk the issuer may cancel your 0% intro APR offer much sooner than you anticipated.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’ll kick in.
Be cautious when charging new payments to your balance 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 interest 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 offers an intro 0% APR on balance transfers and purchases, you should still make at least the minimum monthly payment on time. You can set alerts to help you remember when your payments are due.
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
Requesting a balance 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, as late or missing payments can affect your eligibility for the new card’s introductory rate.
Will applying for a balance transfer hurt my credit?
Applying for a balance transfer card will likely result in a hard inquiry on your credit reports. This won’t immediately affect your credit score, but if you’re approved for a card, opening a new account and increasing a balance could cause a temporary dip in your score, until you’ve had it for a while and lenders can see that you are able to manage credit responsibly. But over time, it could also increase your available credit and lower your credit utilisation, which could have a positive impact on your credit score.
Next steps
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 and a credit limit that can make a balance transfer work for you.