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Balance Transfers Explained

What Exactly Is a Balance Transfer?

Transferring credit card balances from one to another is one of the most common ways of paying off debt. They’re also a very useful tool for managing your finances if you have several credit cards with high-interest rates. Balance transfers can be an effective method for getting out of credit card debt and saving on interest. But make sure you know what you’re doing and don’t get trapped by new debt in the process. 

These transfers are a way to move debt from one credit card account to another, usually with a lower interest rate. The loan is usually for a set time period, typically six months or more. This can help you pay down your debt faster and save money on high-interest payments. Balance transfer offers are often very tempting because they give low-interest rates and sometimes even offer balance transfers with 0 interest. For example, if you have $1,000 worth of debt on your low-interest rate credit card and want to lower that interest rate, even more, you can transfer it over to a new card with a 0% APR for six months. This way, you won’t pay any interest until after those six months are up. 

What Exactly Is a Balance Transfer?

Before we get into how balance transfers credit card processes work, it’s important to understand what exactly it is. The process works according to the principle that you consolidate all debts from the cards onto a new card. You can choose to do this for many reasons:  

  • You want to consolidate your debts on one card with lower interest rates so you can pay them off more quickly and save money in the process.  
  • You’d like to earn rewards while paying down that debt, which may include cash back or airline miles.  
  • Your credit score has taken a hit since opening the account in question and getting approved for another card would be much less difficult than expected.  
  • The APR on your current issuer’s rate is too high and they won’t negotiate with you, but with an introductory offer on a new card you can use it as leverage during negotiations with your current issuer.  

How Do Balance Transfers Work?

By transferring the balance from one credit card to another, you can avoid costly interest charges while paying off your debt faster. The downside is that it might not be worth it if you’re just going to run up more debt with a different card later on.  

For example, let’s say you have $5,000 in credit card debt at 10% APR; if this were spread over six months (like most payment plans), then each month would cost around $200 in interest alone. If instead of paying down this initial balance with your existing cards over time by making monthly payments towards them until they’re paid off entirely (which could take years), you use a balance transfer instead this would save hundreds per month because wouldn’t have any additional APR or transaction fees attached once transferred onto a new card—it would just be an upfront fee charged when applying for said new account/card(s). 

Another example is when you have $5,000 in credit card debt on an 18% APR card and $2,000 in credit card debt on a 12% APR card. You could ask the 18% APR company to move the entire balance to their lower-interest sister company, where it would be paid off with more manageable monthly payments. 

That’s how balance transfers work – they consolidate existing debts into one account at a new lower interest rate and help you save money by eliminating high-interest associated with old accounts. 

Balance Transfers: Pros and Cons

Before you decide if credit cards balance transfers are a good solution for you, it’s important to check some of the pros and cons of this process. 


  • Get out of debt faster. You might have a lot of credit card debt and the interest rates on those cards can be pretty high. If you transfer your balance to a 0% APR credit card then you’ll save money on interest and be able to pay down that debt even faster. 
  • Saving for retirement. Use the money you save from paying lower interest rates towards paying off other debts or investing it for retirement. If this is an option for you, then it’s best to transfer as much as possible so that all of the money saved by transferring goes straight toward paying down debt instead of being used elsewhere in your budget (like the next month’s rent). 
  • Avoid extra charges. Because the new account will have a 0% APR, you can save money on interest payments by paying off the balance faster and avoiding extra charges that would come with carrying unpaid debt. If you’re already charging purchases to a card with an annual fee, transferring your balance to another card that doesn’t charge an annual fee may be of interest to you as well.  


  • If you don’t pay off the balance before the introductory period ends, you’ll be charged interest on your transferred balance at the regular rate.  
  • If you’re not careful, it may hurt your credit score if the amount transferred is large enough or if there are too many new accounts opened within short periods of time.  
  • If you don’t pay off your balance transfer within 60 days of starting it (or whatever time frame is specified by your bank), then you could end up paying more than what was originally owed on either of your old cards. Fees associated with making transfers out from one account into another and other charges related specifically towards moving money around between banks rather than regular purchases made over time with cash instead. 

What Is a Balance Transfer Good For?

There are many reasons why people choose balance transfers on credit cards as their method of payment when they have debt. They might be looking for a way to consolidate the different kinds of debt they have (like auto loans, student loans, mortgage, and credit card) into one monthly payment with lower rates and fees. 

They could also be in need of specific features like no annual fee or reduced foreign transaction fees while traveling abroad, which some cards offer but others don’t offer at all so make sure before applying. Best credit cards that offer balance transfers: 

  • BankAmericard – Best for no penalty APR 
  • Wells Fargo Reflect – Best for longest intro APR  
  • Discover it – Best for rotating category cash back 
  • Capital One SavorOne – Best for everyday purchases 
  • Citi Diamond Preferred – Best for excellent credit 
  • Capital One Quicksilver – No foreign transaction fee 
  • Citi Double Cash – Best for good credit 
  • Capital One VentureOne – Travel credit card with a balance transfer offer 

Does Balance Transfer Hurt My Credit?

The simple answer is yes, balance transfers can hurt your credit. However, it all depends on how you handle the process and whether or not you pay off your balance in full before the introductory APR period ends. 

If you’re able to pay off your balance in full before the introductory APR period ends, then a balance transfer will have no effect on your credit score whatsoever. If you don’t pay off the balance by then, it may negatively impact your score by as much as 100 points (though this is unlikely). A high utilization ratio is one of the five factors that are used by FICO scores to determine how good or bad a borrower’s risk is for lenders–and having too many accounts with balances could make lenders think that they would not be able to trust you with more credit cards later on down the road because of how much debt already exists on your lines of credit.

Are Balance Transfers a Good Idea?

While balance transfers make sense for many people, there are some factors that dictate whether it is a good idea or not. Balance transfers are generally a good idea if you can pay off your debt within the 0% period. If you plan to carry a balance after the 0% period, you will end up paying more interest than if you had not transferred the debt in the first place. In addition, it is important to note that transfer offers can come with higher rates and fees than what they may have been previously charged with previous cards. 

You should also consider whether or not there are any hidden fees associated with it before deciding are balance transfers worth it. 

Bottom Line

Credit cards for balance transfers are a good idea if you have a lot of debt. By transferring your balance from one card to another, you can save money on interest payments, pay off your debt more quickly, and get out of debt sooner. The process is pretty simple: just transfer the balance from one card to another. But like any other credit card transaction, there’s risk involved. Make sure you know what you’re doing before jumping into this process! 

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