What Is A Balance Transfer Credit Card and How Do They Work

High-interest debt can feel like a death sentence. A balance transfer credit card gives you a fighting chance at paying down that debt without drowning in even more interest charges.

With a balance transfer credit card, you can transfer existing debt from other accounts, usually for a fee. Typically, balance transfer credit cards offer qualified borrowers a 0% APR introductory period during which they can pay down their outstanding debt without earning interest on the balance.

If your credit score is in decent shape, you may be able to qualify for a balance transfer credit card. But before you apply, make sure you understand the fees, rates and terms — and know what happens if you don’t pay off the full balance by the end of the promotional period.

What Is a Balance Transfer Credit Card?

A balance transfer credit card is a type of credit card that allows borrowers to move over existing high-interest debt from other accounts. The best balance transfer credit cards will offer an introductory period, typically between six and 21 months, during which borrowers can pay off the debt without accruing any more interest.

Credit card companies usually charge a balance transfer fee between 3% and 5% for this service, though you may be able to find a select number of cards that don’t charge a balance transfer fee.

In addition to balance transfer fees, you’ll also need to consider the regular interest rate that will kick in if you don’t pay off the total transferred balance by the end of the introductory period. If the post-intro APR is high and you haven’t paid down the debt, you could end up right back in the same debt situation you’re in now.

Finally, be aware of balance transfer credit card limits. Like traditional credit cards, balance transfer cards have a credit limit — a max amount of debt you can put on the card before you’re cut off, so to speak. If your existing debt is greater than the credit limit of the balance transfer credit card, you may not be able to move over all of your outstanding debt.

How Do Balance Transfer Credit Cards Work?

With a balance transfer, a credit card company will pay off your outstanding debt with your other lender(s), then transfer that debt to a new credit card issued in your name. You’ll then make monthly payments on the new card — typically without accruing more interest for a set number of months — in an effort to pay down the debt. This usually comes with a fee.

But what is the actual process of a balance transfer? Let’s break down how balance transfers work in five easy steps:

1. Assess Your Current Debt Situation

Before searching for a balance transfer credit card, it’s important to understand the rates of your current loans. While you should aim for a balance transfer card offering a 0% interest rate during an introductory period, you may not qualify. Even so, there could be a balance transfer credit card available with a lower rate than your current credit cards.

Now’s a good time to check your credit score as well. If your score isn’t strong enough to qualify for a balance transfer card, skip the application and come up with another plan. Applying for a credit card drops your credit score temporarily — even if you’re denied.

2. Choose the Right Card for You

The market is saturated with balance transfer credit card offers, but they’re not all the same. Find a card with the right mix of features and terms for your situation.

For example, if you have a lot of debt to transfer, it may be worth it to pay a higher balance transfer fee but get a longer 0% APR introductory period. Borrowers with less debt may want to prioritize lower fees or even simple credit card perks, like cell phone protection or cash back rewards, even if it means a shorter interest-free period.

Once you’ve settled on a card, apply. Some approvals can happen in a matter of seconds, but if your credit history is a little rockier, it could take more time to get your answer. Under federal law, credit card companies have 30 days to issue approval or denial.

3. Initiate the Balance Transfer

You can typically initiate a balance transfer online or over the phone. Whichever method you choose, you’ll need the account information and the amount of debt you want to move.

4. Wait for the Balance Transfer to Go Through

Balance transfers don’t happen immediately. It could take a few days — or even a few weeks — for the new credit card company to pay off your outstanding debts and add the debt to your new credit card.

5. Pay Down the Balance

Once the transfer is complete, start paying down the credit card balance. You can calculate how much you need to pay each month in order to have the total balance paid off before the introductory period ends.

For example, if you have $3,000 in credit card debt on your new card and 15 months of no interest charges, then you’ll need to pay $200 each month to pay off the outstanding credit card balance without accruing additional interest.

What Kinds of Debt Can I Balance Transfer?

When we think of balance transfer credit cards, we often envision moving over all our outstanding credit card debt — because that’s the most common use case. But depending on the balance transfer card issuer, you may be able to transfer other kinds of debt onto your new credit card, including:

• Personal loan debt
• Auto loan debt
• Student loan debt

You typically cannot transfer debt from the same credit card company. For example, if you have high-interest debt on a Chase credit card, Chase will not likely let you transfer that debt to one of its balance transfer credit cards.

Pros and Cons of Balance Transfers

Balance transfers can make a significant difference if you’re struggling with massive debt. But balance transfers themselves can do some harm to your financial wellness. Before opening a balance transfer credit card, consider the pros and cons.

Advantages to Balance Transfer Cards

Here are some of the advantages to taking out a balance transfer card.

Zero Interest

The main reason to open a balance transfer credit card is the 0% APR introductory period. If you can pay off your outstanding debt during this period, you won’t have to worry about accruing additional interest. Because 100% of your monthly payment goes to paying down your debt, you’ll pay off the debt faster and save money on interest.