Pros and Cons of a Balance Transfer

A balance transfer allows you to move debt from one credit card to another, often to take advantage of a lower interest rate or a 0% introductory APR offer.

Balance transfers can make credit card debt easier to pay off by reducing interest charges, but they only work if the benefits outweigh the costs for your situation.

Before opening a balance transfer card, it's worth understanding whether it's the right choice for your situation and what alternatives may be available.

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Key Takeaways

• The biggest pro of a balance transfer is interest savings — a 0% intro APR lets more of each payment go to principal, which can save hundreds on a $5,000 balance.

• The biggest con is the cost and time limit: most cards charge a 3% to 5% transfer fee, and the 0% period will eventually end, leaving any remaining balance to accrue interest.

• The best offers require good or excellent credit — typically a FICO score of 670 or higher — so not everyone qualifies for the top terms.

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What Are the Pros of a Balance Transfer?

Save Money on Interest

The biggest advantage of a balance transfer is the potential to reduce interest costs. Many balance transfer cards offer a 0% introductory APR period, which allows more of each payment to go toward your balance rather than interest charges.

For example, someone carrying a $5,000 balance on a high-interest credit card could save hundreds of dollars in interest during a promotional period, depending on how quickly the debt is repaid.

Pay Off Debt Faster

Paying less interest means more of your money goes toward the balance itself, which can help you pay off debt faster.

Consolidate Multiple Balances

If you have debt across multiple credit cards, a balance transfer may allow you to combine those balances into one account. Having one balance to focus on can make repayment easier to manage for some borrowers.

What Are the Cons of a Balance Transfer?

Balance Transfer Fees May Apply

Many balance transfer cards charge a fee, often ranging from 3% to 5% of the amount transferred. Before moving a balance, compare the cost of the fee against the amount of interest you expect to save.

Promotional APR Periods Eventually End

A 0% introductory APR offer doesn't last forever. If you still have a large balance when it ends, you could find yourself paying interest again.

Not Everyone Qualifies for the Best Offers

The most competitive balance transfer cards often require good or excellent credit. Depending on your credit profile, you may qualify for less favorable terms or may not be approved.

Opening a New Card Could Affect Your Credit

Applying for a new credit card typically results in a hard inquiry on your credit report. Opening a new account can also temporarily affect your credit score.

A Balance Transfer Doesn't Solve the Underlying Debt Problem

A balance transfer can lower interest costs, but it doesn't eliminate the debt itself. If you continue adding to your credit card balances, you could end up owing money on both the old card and the new one.

How Do You Know if a Balance Transfer Is the Right Choice for You?

A balance transfer may be a good fit if:

• You currently have high-interest credit card debt.

• You qualify for a low-interest or 0% APR offer.

• You can realistically pay off most or all of the balance before the promotional period ends.

• The transfer fee is less than the amount of interest you expect to save.

• You can make the required monthly payments.

• You have a plan to avoid taking on additional debt.

For example, if you transfer a $7,500 balance to a card offering 0% APR for 15 months, you'd need to pay about $500 per month to eliminate the debt before the promotional period expires. If that payment fits your budget, a balance transfer may make sense. If not, another repayment strategy may be a better fit.

You may want to consider alternatives if:

• You're struggling to make minimum payments.

• Your debt continues to grow each month.

• You don't expect to pay off much of the balance before the promotional APR expires.

• You're looking for a longer-term debt repayment solution.

Alternatives to Balance Transfers

If a balance transfer isn't the right fit, there are other ways to tackle credit card debt.

• Personal loan: May be a good fit for borrowers who want to consolidate multiple debts into one loan with a fixed monthly payment and a set repayment schedule.

• Debt management plan: May help borrowers who need assistance lowering interest rates and organizing repayment.

• Debt avalanche method: A debt repayment strategy that focuses on paying off the debt with the highest interest rate first.

• Debt snowball method: A debt repayment strategy that focuses on paying off the smallest balance first to build momentum.

A balance transfer can be a useful debt repayment tool, but it isn't the only option available.

FAQs

What is a balance transfer?

A balance transfer is the process of moving debt from one credit card account to another, typically to take advantage of a lower interest rate or a 0% introductory APR offer.

How much does a balance transfer cost?

Many balance transfer cards charge a fee of 3% to 5% of the amount transferred, although some cards may offer promotional periods with lower or no transfer fees.

Do balance transfers hurt your credit score?

Opening a new credit card may temporarily affect your credit score because of a hard inquiry and the addition of a new account. Reducing your credit card balances over time may help offset some of that impact.

Should I close my old credit card after a balance transfer?

Not necessarily. Keeping an account open may help maintain your available credit. But if you're worried you'll run up the balance again, closing the card may make sense. What happens if I don't pay off the balance before the introductory APR ends?

If you still have a balance when the promotional period expires, the remaining amount will generally begin accruing interest at the card's standard APR.

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Key Terms

• Balance transfer: Moving debt from one credit card to another, often to take advantage of a lower interest rate or 0% introductory APR.

• Introductory (promotional) APR: A temporary, often 0%, interest rate that applies for a set period before the standard APR begins.

• Balance transfer fee: A charge to move a balance, typically 3% to 5% of the amount transferred.

• Hard inquiry: A lender's credit check when you apply for a card, which can temporarily lower your score.

• Credit utilization ratio: The share of your available revolving credit you're using; lower utilization generally helps your score.

• Debt avalanche method: A payoff strategy that targets the highest-interest debt first to minimize total interest.

• Debt snowball method: A payoff strategy that targets the smallest balance first to build momentum.

• Debt management plan: A repayment program through a nonprofit credit counseling agency that consolidates unsecured debts into one monthly payment, often at a lower rate.

Sources

• CFPB: What do I need to know about consolidating my credit card debt?

• FTC: How To Get Out of Debt

• myFICO: How a Balance Transfer Impacts Your Credit

• CFPB: What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?

Summary generated by AI, verified by MoneyLion editors