Disclaimer: Upstart is not a financial advisor. The following content is for informational purposes only.
Trying to pay off loans or credit card debt can make you feel like you’re taking one financial step forward and two steps back, especially when you’re trying to save for the future.
Along with time and patience, you’ll need a plan of action to help you effectively pay off debt. Luckily, different methods—like a balance transfer credit card—can help you save money, kick debt to the curb, and get back to doing the things you love.
To kick-start your debt payoff, we’ll help you discover everything you need to know about balance transfer credit cards, including what they are, how to get one, and if they’re right for you.
What is a credit card balance transfer?
A credit card balance transfer is a type of transaction where you move an outstanding balance with a high interest rate to a credit card account with better terms. Typically, this credit card transfer offers an introductory 0% APR (annual percentage rate) and other benefits, like a rewards program to earn cash back or points for spending.
During the introductory period, you pay 0% interest on the debt balance that you move. Essentially, you can pay down debt free of charge during that period.
Why get one? If you’re currently repaying high-interest debt, you can save a lot, and we mean a lot, of money in interest charges. But you have to plan it well.
While a balance transfer may seem like a financial no-brainer, it’s not the right move for everyone, because these transactions come with certain costs and limitations.
What kinds of debt can I use a balance transfer credit card for?
The types of debt you can transfer depend on the card you get. Most of the time, you can move balances from credit cards and loans like a personal loan, auto loan, or student loan. To be sure the card you’re thinking about getting will fit your financial needs, check the terms of the card before you commit.
How do balance transfers work?
While the exact process for balance transfers can vary widely, we’ve listed the steps you generally have to take.
- Apply for a new credit card. Get a credit card from an issuer with a promotional period of 0% APR for balance transfers. In order to qualify, you typically need a good credit score (think: anything 670 or higher). Be aware that you typically cannot make a transfer with the same issuer. For example, if you want to make a balance transfer from a Chase card, you cannot transfer it to a new Chase card.
Pro tip: If you’re already a cardholder, you might already have an offer that you can use.
- Start the balance transfer. Depending on the issuer you work with, you can transfer a balance in person, over the phone, or online. Just be prepared to provide essential details about yourself and account information like the type of debt you want to move, the issuer name, the amount of debt, and your account number.
- Wait as the transfer goes through. Once you submit everything the issuer needs for the balance transfer, it’ll take 1 to 2 weeks to complete. During this time, the lender will pay off your old account. Then the balance from your old account and the balance transfer fee will appear in your new account.
- Start paying off the balance. Once the balance is moved into your new account, you’ll be required to make a monthly payment until it’s paid off. It’s in your best interest to pay the balance down as much as you can, or completely, during the introductory 0% APR period. This strategy can save a lot in interest costs.
Can I still use my credit card after a balance transfer?
Yes! After you transfer the balance to a new card, your original account doesn’t automatically close and you can still use it to make purchases. Actually, you might still have a balance on your old credit card. How? Even if you’re granted a credit card with an introductory 0% APR, you might be given a credit limit that’s less than your outstanding debt (we’ll get more into this in a bit!).
If that happens, you won’t be able to transfer the entire debt. In that case you’ll probably still have a balance on the old card after you make a transfer, and you’ll need to continue to make payments on that card as well.
If you don’t have a remaining balance after your transfer, you may want to keep your old account open anyway. An important factor in calculating your credit score is the length of time you have had an active account. If your original card is one of the oldest you have, closing the account could have a negative impact on your credit score. If you’d like to close your old account, talk to your lender about it first to make sure you’re taking the right steps.
Do balance transfers hurt your credit?
Not likely. Getting a balance transfer shouldn’t impact your credit score much or, sometimes, at all. However, if you get a balance transfer and close the original account immediately, especially if it’s your oldest account, it could negatively affect your credit score.
On the bright side, a balance transfer might help you improve your credit score. Transferring a high interest balance to an account with an intro 0% APR and overall lower rate could help you pay down your debt faster, which will help improve your score.
Another element that can help you possibly improve your credit score is your credit utilization ratio. That’s the amount of the total available credit you actually use. By getting a new credit card and a new line of credit, you’ll be able to reduce your credit utilization, which can also give your credit score a boost.
Pro tip: A credit utilization ratio is like a balancing act. You should always strive to keep your credit utilization ratio below 30%. If you go above 30%, it can potentially hurt your credit score.
What you need to consider before getting a balance transfer credit card
If you want to get a balance transfer credit card, the first thing you need to do is to review your overall financial picture and to do your research. Even though a balance transfer credit card can help you save money, it can come with terms and conditions that’ll come as a surprise if you don’t do your research up front. Before you get a balance transfer, think about these few details.
Your credit score
Before a lender grants a balance transfer credit card, they need to review a few key details about your financial standing, the most important being your credit score. You’ll be more likely to get one of the best options for balance transfer credit cards if you have a credit score of 670 or above.
If you have a low credit score, there are balance transfer options available for you too, but you may want to consider taking steps to improve your credit score first.
Getting a balance transfer credit card isn’t free. A majority of issuers charge a credit card balance transfer fee, which is usually 3% to 5% of the balance transferred into the new account. To put that into perspective, if your issuer charges you a balance transfer fee of 4% and you have a $9,000 balance to transfer, you need to pay $360.
Some issuers charge a lower fee if you move your balance within a designated period of time. Always ask your issuer about timeframes in advance so you know what you’re getting into.
Length of the 0% APR introductory period
Check out how long the 0% APR period lasts before you commit to balance transfer. Make sure you’re getting the longest period of time possible to pay off your balance interest free to help you save money. The best balance transfer cards offer a 0% APR, which can last from 12 to 21 months. After the intro period is over, the credit card company will start charging you a regular interest rate. This information is usually outlined in the term agreement before you commit.
Credit limit restrictions
Another important consideration is your credit limit, which is the total amount of money you can charge on a credit card. Each time you make a new purchase with your card, the amount you charge to your card is subtracted from your limit and the number you’re left with is your available credit.
Before you’re granted a balance transfer credit card, the issuer will check out your credit history, credit score, and income to determine the credit limit they’ll offer you. Why does this matter? The balance amount you can transfer into your new account varies depending on the issuer you select. As a reminder, if you’re approved for a low credit limit, you might not be able to move over your full balance all at once.
Balance transfer turnaround time
How long does a balance transfer take? Balance transfers typically don’t happen instantaneously. Depending on the issuer you select, your transfer could take anywhere from 1 to 6 weeks to complete.
Balance transfer alternatives
If you don’t think a balance transfer credit card is the right choice for you, there are alternative options you can consider. For instance, if you have an outstanding balance of more than $10,000, a debt consolidation loan might be a good option for you. These types of loans are unsecured and while they might not have a 0% APR intro offer, they typically have a lower regular interest rate compared to credit cards.
Depending on your financial needs and standing, you can also consider getting a home equity loan, HELOC (home equity line of credit), or a cash-out refinance. These types of loans are secured, which means the lender will require you to put up collateral, like your home or car, to back the loan in case you default.
Since the collateral will provide the lender with an extra layer of assurance that they won’t lose money on the loan, the interest rates will typically be much lower than a credit card or personal loan. However, be careful—if you default on your monthly payments, the lender will take the collateral from you as a form of payment.
So, should I do a balance transfer?
We can’t answer that question for you. But we can let you know that it might make sense for you to do a balance transfer if one or both of these things are true for you:
- You have a debt balance with a super high interest rate. You can save money by moving your debt from an account with high interest to an account with an 0% APR intro period or to an account with a lower interest rate. The best balance transfer credit cards offer three big zeroes: 0% intro APR benefit for balance transfers, $0 balance transfer fee, and a $0 annual fee.
- You want to combine several monthly debt payments. Juggling several debt payments each month can be a headache. You can use a balance transfer for debt consolidation, which will lower the number of payments you need to track.
When it comes to deciding if a balance transfer is a good choice for you, it’s important to do your research, consider all of your options, and determine if you can qualify for some of these benefits.