What Is a Balance Transfer?

A balance transfer often refers to moving the balance of one debt to a credit card with better rates or terms. Balance transfers can help consumers save with time-limited low (or no) interest rates. But they’re not without their own downsides. 

🤔 Understanding balance transfers

A balance transfer involves moving an outstanding debt to a new credit card. Essentially, you’re paying off one debt by taking on another (ideally one with more favorable rates and terms.) While card-to-card balance transfers are more common, you can use a balance transfer to pay off auto or personal loans, too. 

Generally, it’s best to transfer your balance only if doing so will lower long-term interest charges. Many cards offer promotional offers, such as 0-5% balance transfer fees with 0% APR for up to two years after the transfer. Some companies do this to attract new customers with large balances. Some cards even extend the 0% APR to new purchases, too.

When used wisely, a balance transfer gives you time to repay your debts without worrying about pesky interest charges. That said, you’ll still have to keep on top of your monthly balance until it’s paid off. If you don’t, you risk paying fees and even losing your balance transfer or promotional APR perks. 

Pros and cons of balance transfers

Pros:

• They can lower the interest rates on debt repayments
• You can pay off credit card debts, auto and personal loans and even HELOCs (home equity lines of credit)
• A 0% introductory balance transfer or purchase APRs can last up to two years
• Some balance-transfer cards offer cashback, mileage or other perks

Cons:

• The lender may run a hard credit check, lowering your credit score
• Your credit limit may be lower than your debt, meaning you can only transfer some of your balance
• Many cards require you to transfer your balance within 60 days of opening
• Some lenders charge a fee equal to 3-5% of your transferred balance, even on 0% APR offers
• Once the promotional period ends, your APR could soar
• 0% interest rates can tempt you to make new purchases, increasing the chance you won’t repay your balance before the promotion ends

What this means for you

Balance transfers can be helpful if you have large debts or balances with high interest rates. Moving your debt to a low- or no-interest card gives you time to catch up on your debts. Balance transfers also come in handy if you want to consolidate multiple debts into a single, lower-interest sum. 

However, it’s important to pay attention to the terms and conditions. Missing even a single payment is often grounds to nullify your balance transfer or 0% interest perks. 

And if you’re someone who struggles with debt, balance transfer promotions can tempt you to spend even more.

The key is to find a card with more favorable terms and interest rates—and avoid increasing your balance before the promo period runs out.