How to do a balance transfer
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Updated 11:00 a.m. UTC Nov. 14, 2023
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When you find yourself burdened with a large amount of high-interest credit card debt, trying to pay down those balances can feel like a never-ending battle. Yet sometimes the tool you need to pay off your debt faster is actually another credit card — a balance transfer credit card.
Moving that debt to a balance transfer credit card with a low or 0% promotional APR could empower you to save money and take better control of your debt when you use the account wisely. Of course, a balance transfer isn’t the perfect solution for everyone. So, it’s important to understand how the process works and evaluate whether it might be the right solution for you.
Below is what you need to know about balance transfers and how to initiate one if and when you’re ready to move forward. Just note you’ll likely need good credit or better to qualify.
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What is a balance transfer?
A balance transfer is a credit card transaction that lets you move debt from one card to another from a different issuer. When you shift high-interest debt to a balance transfer credit card with a promotional APR (often 0% APR), you can potentially save on interest charges. Plus, balance transfers can consolidate debt you owe to multiple creditors into a new, single payment.
What to do before a balance transfer
There are several steps you should take before deciding if a balance transfer is right for you:
- Review your credit. A credit card issuer will check your credit report and score when you apply for a new balance transfer credit card. So, it’s wise to check your own credit report and credit score to know where you stand before you start filling out new credit card applications.
- Compare credit card offers. If your credit is in good shape, you can compare offers from multiple credit card companies. Shopping around can help you find the balance transfer credit card that’s the best fit for your situation. (Tip: Pay attention to any balance transfer fees that card issuers charge. These will impact your overall costs.)
- Improve your credit (if necessary). If your credit score is fair or poor, you might need to fix and repair your credit before you apply for a new credit card. Many banks require applicants to have good credit to excellent credit to qualify for a balance transfer offer.
- Confirm a balance transfer is the right choice. Be sure that a balance transfer makes sense for your financial situation. If you only have a small amount of credit card debt that you could pay off in a few months, the cost of balance transfer fees might outweigh the benefits of consolidating your debt. Likewise, if you’re not sure you can avoid overspending in the future, a balance transfer might not be the answer you need to help you get out of credit card debt and remain debt free in the future.
How to do a balance transfer
Below are the general steps of performing a balance transfer if you decide to move forward with this type of debt consolidation solution. If choosing a new balance transfer credit card for which to apply, remember that you cannot transfer debt between two cards from the same issuer.
- Step one: Apply for a balance transfer credit card or take advantage of a balance transfer offer on a credit card you already have. Be sure to read the fine print so you understand how long the 0% APR or low-interest rate promotional period will last, along with the cost of any additional balance transfer fees.
- Step two: Request the balance transfer. You can typically initiate the balance transfer process online or over the phone. Sometimes a credit card issuer may also send you convenience checks in the mail that you can deposit in your bank account and pay out to your existing creditors. Whichever route you choose, review the terms and conditions to confirm that the card issuer will consider the transaction to be a balance transfer and the interest rate and fees that the issuer will charge you.
- Step three: Verify your original creditors receive their payments. It’s important to confirm that the balances on your original credit cards and any other high-interest debt you’re paying off either zero out or update as you expected (both on your credit reports and on your statements). And remember, until the transfer is completed, you’re responsible for making any payments that may be due on the old account or accounts.
- Step four: Repay your debt. Once your transferred balances appear on the new credit card, take advantage of the 0% APR or low-interest period and pay down your debt as aggressively as possible. If you can repay the full transferred balance before the promotional APR period ends, your balance transfer could help you save even more money on interest charges.
Pros and cons of a balance transfer
Pros
- 0% interest rate: Many balance transfer credit cards feature 0% introductory APRs. If you’re eligible for a balance transfer with 0% APR, your full monthly payment goes toward your principal debt rather than a portion of your payment going toward interest charges.
- Possible credit score improvement: A balance transfer could reduce your credit utilization rate — the relationship between your overall credit card balances and credit card limits. Every situation is different. But if you open a new credit card and it causes your credit utilization rate to go down, you might improve your credit score.
- Consolidate multiple payments into one: If you’re struggling to juggle multiple payment amounts and different due dates, transferring all your debt to one card could simplify your situation. Just be aware if you’re carrying a lot of debt, your credit limit on the new card might not be enough to take all the old debt, or the issuer might cap how much you can transfer.
Cons
- Balance transfer fee: Most credit card companies charge a 3% to 5% balance transfer fee. So, you have to do the math to make sure a balance transfer offer will still save you money in spite of this fee (if applicable).
- Doesn’t resolve overspending issues: In many cases, credit card debt comes from spending more than you can afford to pay off in a given month. If you don’t break the cycle of overspending and adjust your budget, a balance transfer won’t help you stay free from credit card debt in the long run.
- Requires good or better credit: You typically won’t be able to find a 0% balance transfer offer if you have poor or fair credit. In that case, you’ll need to look at ways to build your score up before applying for a balance transfer card. If you’re struggling to improve your financial situation, you may wish to consider a debt management plan working with an accredited nonprofit credit counseling agency.
Balance transfer processing times can vary from one credit card issuer to the next. In general, you can expect a balance transfer to take anywhere from a few days to a few weeks.
If you want to know how long a balance transfer will take, check with your credit card company for an estimate. It’s also important to continue to make at least the minimum payment on your original credit card until you confirm that your full balance has been paid off with a balance transfer to avoid any late payment penalties and other possible issues.
A balance transfer has the potential to impact your credit score in both positive and negative ways. If you open a new balance transfer credit card and use it to pay off existing credit card balances, this action could reduce your credit utilization rate. Lowering your credit utilization rate could have a positive credit score impact.
Furthermore, a balance transfer may reduce the number of accounts with outstanding balances on your credit report. If it does, that action could be good from a credit score perspective as well.
On the other hand, applying for a new credit card (or any other type of financing) can cause a new hard credit inquiry to appear on your credit report. Hard inquiries have the potential to slightly damage your credit score for up to 12 months.
Additionally, when a new account shows up on your credit report, it can lower your average age of credit. Length of credit history is worth 15% of your FICO® Score. So, it can take some time to bounce back from this potential setback, especially if you make a habit of opening new accounts on a regular basis.
There are several reasons a credit card issuer might not approve your request for a balance transfer. Some of the reasons an issuer might deny your application for a new account include if your credit score is too low, your debt-to-income (DTI) ratio is too high, or you can’t satisfy other qualification requirements. (Tip: Consider credit cards that offer preapproval or pre-qualification to make the credit card shopping process easier to navigate.)
Even if you qualify for a new account, a credit card company might deny your request for a balance transfer under the following circumstances:
- You’re trying to transfer debt from a credit card with the same issuer (e.g. Chase to Chase or Capital One to Capital One).
- You asked to transfer more debt than your credit card issuer allows.
- Your credit limit is too low to cover the balance transfer you’re requesting plus the cost of the additional balance transfer fee.
- You waited too long to request a balance transfer after account opening and are no longer eligible for the promotional offer.
Most credit card issuers charge a balance transfer fee to move debt from one credit card to another. Balance transfer fee costs can vary, but commonly range between 3% to 5% of the amount you transfer. Most balance transfer fees also feature a minimum amount you must pay (often $5 to $10) for balance transfers of any size.
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