MoneyRates has partnered with CardRatings for our coverage of credit card products. MoneyRates and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

What is a Balance Transfer Credit Card and How Does It Work?

| MoneyRates.com Senior Financial Analyst, CFA
min read

debt-eraserEager to get a handle on your credit card debt?

A balance transfer credit card can be a useful tool both for managing credit card balances and reducing the cost of that debt.

The key is to use a balance transfer credit card the right way.

That means understanding...

  • ... how a balance transfer card works
  • ... how to choose the best balance transfer credit card offer
  • ... and how to use it to pay off your debt.

>> Compare balance transfer credit card offers

What is a Balance Transfer Credit Card?

In the simplest terms, a balance transfer credit card is one that lets you transfer the debt you currently owe on one credit card to a new, different credit card.

Why would you do that?

Many balance transfer cards do much more than simply allow you to transfer balances. They often have special terms that make transferring a balance much more attractive.

After all, just moving debt from one credit card to another doesn't do much good. You only save money if the new card has a lower interest rate than the old one.

What is the best reason to get a balance transfer credit card?

Credit card issuers that market balance transfer cards frequently give you good reason to move debt onto their cards by offering a 0% interest rate for a limited period of time.

(That most likely represents a substantial savings in interest rate on your existing credit card balances.)

Applying that substantial savings in interest toward reducing your credit card balance every month can help you get out of debt faster. And getting out of debt faster is the most effective use of a balance transfer credit card and why it can be such a good idea to get one.

Of course, you can also use a balance transfer credit card to make new purchases. However, a different interest rate may apply to new purchases than to transferred balances, and making new purchases on credit goes against the idea of getting out of debt.

How Balance Transfer Credit Cards Work

What happens when you get a balance transfer card?

Typically, there is a limited time period during which a special low interest rate applies to any balances you transfer. This rate may be as low as 0%, and these special low rates generally apply for periods of one to two years.

So far, that sounds like a great deal, but there are some other things to know about how balance transfer cards work:

  1. Fees

    Balance transfer cards often charge a one-time fee for transfers. These are typically 3% to 5% of the amount transferred.

  2. How much to transfer

    There may also be a minimum-dollar amount charged for balance transfers. If your new card has a minimum-dollar fee for transfers, it's best to avoid small transfers because this type of fee may represent an overly high percentage of a small transfer amount.

  3. When to make transfers

    Though it's not always the case, some credit card issuers require that you transfer balances within a few months of opening your account. If you wait too long, the lower balance transfer APR may not apply to the balances you transfer.

To get the best value, compare what you'd save to what it costs

When considering a balance transfer, always compare whether the amount you would save on interest by making the transfer is more than you would have to pay in balance transfer fees. This depends in part on how quickly you plan to pay off the balance.

If you plan to pay off the debt within a couple months anyway, you may not save enough on interest to justify the balance transfer fee.

To get the best result, pay off your balance before the special rate ends

When using a balance transfer card, the best case is if you pay off the balance before the special low interest rate expires. That way as long as the savings from that special rate exceeds any balance transfer fees, you win.

It gets more complicated if you don't pay off your balance before the special rate runs out, or if you make new purchases on your balance transfer card. In that case, once any special interest rate no longer applies, you will be paying interest just like you would on any normal credit card.

Finally, keep in mind that applying for a balance transfer credit card is no different than applying for any other form of credit. Even just applying can hurt your credit score, as can opening a new account - especially if you close an older account at the same time.

Comparing Balance Transfer Credit Card Offers

Finding the best balance transfer credit card offer involves comparing key features to your financial goals. Do you need a balance transfer card with:

  • a low ongoing interest rate?
  • a long period of time to pay off your balance?
  • a low balance transfer fee?

The Citi® Double Cash Card - 18 month BT offer and the Wells Fargo Cash Wise Visa® card are good examples of how terms and features differ from card to card. Here's a side-by-side comparison:

Balance Transfer Credit Card Balance Transfer Intro APR/Period Balance Transfer Fee

Regular APR

Annual Fee Credit Score Needed
Citi® Double Cash Card - 18 month BT offer APR: 0%

Period: 18 months on Balance Transfers

3% of each balance transfer; $5 minimum. 13.99% – 23.99% (Variable) $0 Excellent
Wells Fargo Cash Wise Visa® card APR: 0% Intro APR

Period: 15 months on qualifying balance transfers

3% for 120 days, then 5% 13.99%-25.99% Variable $0 Excellent, Good

Citi® Double Cash Card - 18 month BT offer

The Citi® Double Cash Card - 18 month BT offer is a strong contender in the balance transfer category of credit cards.

Its 0% intro APR for 18 months on Balance Transfers is longer than most offers. In addition, with the Citi® Double Cash Card - 18 month BT offer, you'll only pay a fee of 3% of each balance transfer; $5 minimum. Compare that to an offer with a 5% fee and it could save you $200 on a $10,000 balance transfer.

The Citi® Double Cash Card - 18 month BT offer could be a good choice for the long term too.

After your credit card balance is paid off, you'll appreciate that you can get cash back on new purchases and the ongoing APR is on the low side at 13.99% – 23.99% (Variable).

Citi® Double Cash Card - 18 month BT offer

Citi<sup>®</sup> Double Cash Card - 18 month BT offer

Bonus: N/A

Cash Back Rewards on Purchases: The cash back rewards are essentially 2% cash back on all purchases. You get 1% when you buy plus 1% as you pay.

Intro APR on Purchases: N/A

Balance Transfer Intro APR: 0% for 18 months on balance transfers

Balance Transfer Fee: 3% of each balance transfer; $5 minimum.

Regular APR: 13.99% – 23.99% (Variable)

Annual Fee: $0

Credit Needed: Excellent

Wells Fargo Cash Wise Visa® card

At 15 months on qualifying balance transfers, the balance transfer period for the Wells Fargo Cash Wise Visa® card is not the longest in the industry.

In addition, you must make any transfers within four months of opening your account in order to receive the 0% Intro APR rate.

The balance transfer fee for this card is also among the highest at 3% for 120 days, then 5%.

Still, the Wells Fargo Cash Wise Visa® card has some nice features like its 0% Intro APR on purchases and the fact that the credit score needed includes people with good credit.

Wells Fargo Cash Wise Visa® card

Wells Fargo Cash Wise Visa® card

Bonus: N/A

Cash Back Rewards on Purchases: Earn unlimited 1.5% cash rewards on purchases. 1.8% cash rewards on qualified digital wallet purchases, like Apple Pay® or Google Pay™, during the first 12 months from account opening

Intro APR on Purchases: 0% Intro APR

Balance Transfer Intro APR: 0% Intro APR for 15 months on qualifying balance transfers

Balance Transfer Fee: 3% for 120 days, then 5%

Regular APR: 13.99%-25.99% variable

Annual Fee: $0

Credit Needed: Excellent, Good


>> Compare balance transfer credit card offers and reviews


Balance Transfer Credit Cards: Key Factors to Compare

Based on the way balance transfer cards work, there are a number of factors to consider when choosing one. This depends on both the terms offered by the card and how those terms would apply to your situation.

Here are some of the most important factors you should check when shopping for a balance transfer credit card:

Annual Percentage Rate (APR)

The annual percentage rate (APR) is the interest rate the credit card issuer charges on any balance you don't pay off in full every month. APR takes simple interest and includes the impact of compounding. So, the APR is the percentage of interest you can expect to pay over the course of a year on a balance left in the account for the entire time.

For example, if a card has a 14% APR and you left a $100 balance in the account for the entire year, you would pay $14 in interest.

APR range

When you start comparing credit card APRs, you'll often notice more than one APR listed. Not only do some cards apply different rates to different types of uses, but they often charge different rates to customers depending on the customer's credit history.

For instance, a card might show an APR range from 12.99% to 24.99%. That means customers with excellent credit would pay 12.99%. Customers with less-than-perfect credit would pay something higher, on up to 24.99%.

These APR ranges are often very wide. You probably won't find out the exact rate you'll get before you are approved for the card, but you can make a good guess based on your credit history.

The better your credit, the closer to the low end of the APR range you're likely to be. If you have weaker or limited credit, expect to be closer to the high end of the range. Keep that in mind as you compare offers from different credit card issuers.

Balance transfer APR

Not only do credit cards have APR ranges which depend on your credit history, but they may also charge different rates for different types of uses.

Normally, the main rate a card lists is for new purchases. If you are focusing on a card for balance transfers, you will want to check and see if a balance transfer APR rate applies to those transfers.

Introductory balance transfer APR

What makes balance transfer cards an attractive deal is when they offer a special low rate on transfers made during an initial period after you open the account. In many cases that special rate is 0%, which should give you a great opportunity to save on interest compared to the rate you're paying on your current credit card balances.

Introductory balance transfer period

This is the number of months for which the introductory balance transfer APR applies. If you expect to take a long time to pay off your credit card balance, you should look for the longest introductory period you can find.

Balance transfer fee

This is a fee charged on the amount of money transferred.

Compare balance transfer fees when shopping for cards. Also, always check the balance transfer fee before you make a transfer, to see if you would save more on interest by making the transfer than this fee would cost you.

Annual fee

Some cards charge an annual fee regardless of how you use the card. Always check to see if such a fee would apply to any card you are considering, and make sure any interest savings on a balance transfer card would be enough to make that fee worthwhile.

Credit limit

The credit limit is the maximum amount of debt you are able to carry on the card at any one time. Obviously, if you are planning to transfer existing balances to a new card, you may need a pretty hefty credit limit on the new card.

As a practical matter, you may not be able to find out your credit limit until you are approved for the new card. However, once that happens, it is something you should check so you can plan your balance transfer strategy.

Balance transfer limit

Besides the overall credit limit, some cards may have a specific limit on how much debt you can transfer onto the card. This is something you need to check before you start trying to transfer debt balances.

Minimum monthly payment

This is the smallest amount you are allowed to pay each month.

Failing to make the minimum monthly payment can have a variety of negative consequences. It may result in an extra fee or penalty. It may cause an increase in your APR, including losing out on the special low introductory APR.

A pattern of missed payments is likely to hurt your credit history and may also result in the cancellation of the credit card.

Beyond all those negative consequences, you should strive to pay more than the minimum monthly payment anyway. This reduces your interest expense and can help you pay off your debt faster.

Rewards

Some balance transfer cards offer rewards such as cash back or travel miles. These are nice extra perks, but they shouldn't be the primary reason for choosing a balance transfer card.

Rewards have the most value if you use the card to earn them but then pay the balance off promptly. That way, the interest you pay won't exceed what those rewards are worth.

Also, if rewards prompt you to make purchases you wouldn't otherwise make, they aren't earning you money - they're actually costing you.

Using Balance Transfers to Pay Off Your Debt

Here are some tips for how to pay off your debt using a balance transfer card:

  1. Shop carefully to find the best balance transfer credit card for your situation

    Think through how you plan to use the card, and then compare terms. This way you can figure out which card is the cheapest option for your planned usage.

  2. Prioritize which balances to transfer first

    If you are transferring balances from multiple credit cards, start with the one that is charging you the highest APR. This maximizes the interest savings you can get from the transfer.

  3. Budget to pay down debt within the introductory period

    The way to maximize the benefit of a balance transfer card is to plan to pay off the balance while the low introductory interest rate applies.

  4. Don't let clearing a credit balance prompt new spending

    One danger of transferring balances is that it then clears the credit limit on the old card for additional spending. A balance transfer should be part of an overall plan to eliminate debt. Once you transfer the balance off of a card, put that card aside so you don't start incurring interest charges on it again.

Like any financial tool, balance transfer cards are only really useful if you use them the right way. Plan for how to use the transfer to reduce debt; then shop carefully to find the best card for that plan.

0 Comment