If you buy something expensive with a credit card and only make the minimum payments, you could be paying for that purchase for years. High interest rates can cause your balance to grow rapidly, and you may find it difficult to make any progress with your debt.
Completing a balance transfer can help you save money and eliminate your debt faster. In fact, a recent survey by the credit bureau Experian found that nearly two-thirds of balance transfer users paid off their balances within the cards’ promotional periods.
However, there are some possible downsides to keep in mind, including high balance transfer fees and the risk of adding to your debt if you can’t pay off your balance before the promotional period ends.
Here’s what you need to know about the pros and cons of balance transfer credit cards so you can make an informed decision on the best way to handle your debt.
Benefits of Balance Transfer Cards
A balance transfer is when you move your existing balance from one card to another. It’s a popular strategy for tackling debt due to the following reasons:
Save on Interest
The possibility of saving money is one of the biggest benefits of doing a balance transfer.
Credit cards can have very high annual percentage rates (APRs). Although the average APR for all accounts assessed interest in Q3 of 2021 was 17.13%, according to the Federal Reserve, some cards can have rates as high as 30%.
With such a high APR, interest charges can cause your balance to balloon over time. But with balance transfers, you can move the balance to a card that offers a much lower APR.
“Traditionally, when you’re dealing with a balance transfer, you’re talking about a card with a 0% interest rate for a set period,” says Kim Cole, community engagement manager with Navicore Solutions, a non-profit credit counseling agency. “So if you are someone that qualifies for 0% APR, you will save money, particularly if you are very strict with your payments.”
Although a balance transfer can help you pay down debt faster by reducing the amount of interest you’ll need to pay, make sure you pay attention to balance transfer fees. Some cards charge as much as 5% of the transferred balance, adding to your debt.
For example, if you had a $5,000 balance at 17% APR and a minimum monthly payment of $125, it would take you 60 months to pay off your debt. You’d pay a total of $7,431, with $2,431 of that being interest.
But let’s say you used a balance transfer and moved your $5,000 balance onto a card that offered 0% APR for 18 months, a regular APR of 17% once the introductory offer expired, and a balance transfer fee of 3% of the balance (in this case, $150). If you continued paying $125 per month, you would pay off your debt in 47 months instead of 60. And, you’d pay a total of just $5,791, allowing you to save $1,640 in interest.
The average American consumer has three credit cards, according to the credit bureau Experian. Juggling multiple due dates and minimum payments can be confusing and increase the risk of accidentally missing payments. One benefit of doing a balance transfer is that it consolidates some or all of your debt into one place.
“The most common reason people use a balance transfer is simplicity,” says Todd Christensen, education manager with Debt Reduction Services, a non-profit credit counseling agency headquartered in Boise, Idaho. “They want to get multiple accounts onto one account to make it easier to manage,” he explains.
Once you’ve transferred your balances onto a new card, you’ll have just one payment and one due date to remember, making it easier to stay on track.
Pay Off Debt More Quickly
If you only pay the minimum on your credit card, you could be in debt for years. Due to high APRs, interest accrues rapidly, causing your balance to grow.
If your minimum payment isn’t chipping away at the balance like you hoped, a balance transfer can help. If you take advantage of a 0% APR offer, your balance won’t accrue interest during the introductory period. This means that your entire monthly payment will go towards the principal rather than interest — helping you pay off debt faster.
Drawbacks of Balance Transfer Cards
Although there are many advantages to balance transfers, they’re not always a good idea. Before applying for a new card or transferring your balance to an existing one, consider these potential downsides:
Balance Transfer Fees
When you transfer your balance onto a new card, the card issuer will typically charge you a balance transfer fee. Balance transfer fees are typically 3% to 5% of the total balance transferred and can add to your debt.
For example, if you had $5,000 that you transferred to a card with a 5% balance transfer fee, you’d have to pay $250 to transfer your balance. That fee is on top of all of your other charges, including the original balance and interest charges.
Building Up More Debt
While a balance transfer can accelerate your debt repayment, it doesn’t solve the root problem. Paying down your credit card debt will require you to develop a budget, avoid extra spending, and make consistent payments towards your debt. Otherwise, you’ll be in the same situation as before.
“That’s one of the problems that I unfortunately see,” says Christensen. “People think that [a balance transfer] is going to help them get out of debt. But if they don’t actually focus on getting out of debt and closing those other old accounts, they can end up in worse shape than before.”
Before transferring your balance, make sure you are committed to addressing the root causes of your debt. If you need help managing your finances or coming up with a debt repayment plan, consider meeting with a counselor from a non-profit credit counseling agency for free or low-cost assistance.
Being Unprepared When the 0% APR Period Ends
With balance transfers, the 0% introductory APR is only for a limited time. Typically, promotional offers last for anywhere from six to 21 months.
When the introductory period ends, the regular purchase APR applies to new purchases and the existing balance. If you aren’t prepared, the jump in payments can come as a surprise.
“One of the issues that people have is not knowing when the 0% offer ends,” says Cole. “The interest rate can be quite high just after the introductory period expires. So, it’s very important to understand what you’re getting yourself involved in when you do the transfer,” she explains.
Carefully read your card’s disclosures and terms to ensure you know when the promotional APR ends and the regular APR applies. If possible, try to pay off your entire balance before the introductory period ends to minimize the amount of interest you’ll need to pay. Be aware that this may involve making more than just the minimum payment every month.
Finding the Best Balance Transfer Card
If you’ve carefully considered all the pros and cons and have decided a balance transfer is right for you, the next step is choosing a balance transfer card. There are many cards on the market, but some are better than others. It’s important to do your research and crunch the numbers yourself.
When reviewing offers, one important consideration is the length of the promotional offer. Most 0% APR offers range anywhere from six to 21 months, depending on the specific card, but you’ll typically need excellent credit to qualify for cards with longer introductory periods. All the recommended cards on NextAdvisor’s best balance transfer cards list have 0% APR offers lasting 18 months or more.
Be sure to double-check the card’s terms and fees; not all cards charge balance transfer fees, but the cards that do usually charge 3% to 5% of the amount transferred. Also see if the card charges an annual fee or other fees such as foreign transaction fees or late fees.
Finally, check if the card sets any limitations for the balance transfer. Some cards may require the balance transfer to be completed within a certain time frame in order to receive the 0% introductory APR. Others may increase the balance transfer fee after a certain amount of time has passed. If that’s the case, make sure you complete the balance transfer in the mandated time period.
If you’re not sure where to start, these three balance transfer cards are among our top picks:
Wells Fargo Reflect Card
The Wells Fargo Reflect℠ Card offers 0% intro APR for 18 months from account opening on purchases and qualifying balance transfers. Eligible applicants can qualify for an extension of the introductory APR for up to three months with on time payments, giving you up to a total of 21 months at 0% APR. After that, a variable APR of 12.99% to 24.99% will apply.
The card has no annual fee, and qualifying balances transferred within the first 120 of opening an account will be subject to an intro balance transfer fee of 3% of the balance transfer amount or $5, whichever is greater. After 120 days, the balance transfer fee is up to 5% of the amount or $5, whichever is greater.
Citi Double Cash Card
The Citi® Double Cash Card is a popular rewards card that offers 2% cash back on every purchase, but it’s also an excellent balance transfer card. It has no annual fee, and you can get 0% APR on balance transfers for 18 months. Once the introductory period ends, a variable APR of 13.99% to 23.99% applies.
Balance transfers completed within four months of opening an account carry a balance transfer fee of 3% of the balance transfer amount or $5, whichever is greater. If you transfer a balance after four months, the fee is 5% of the amount or $5, whichever is greater.
BankAmericard Credit Card
The BankAmericard® credit card has no annual fee, and you can enjoy 18 billing cycles at 0% APR on balance transfers completed within the first 60 days of opening an account. After that, a variable APR of 12.99% to 22.99% will apply. The BankAmericard has a balance transfer fee of 3% of the balance transfer amount or $10, whichever is greater.
If you’re looking for other options, check out NextAdvisor’s picks for the best balance transfer cards of 2021.
Wells Fargo Reflect℠ Card
Citi® Double Cash Card
- Intro bonus:N/A
- Annual fee:$0
- Regular APR:13.99% – 23.99% (Variable)
- Recommended credit:670-850 (Good to Excellent)
- Learn more At our partner’s secure site