What is a balance transfer and how does it work? (2023)

FAQs

What is a balance transfer and how does it work? ›

A balance transfer moves a balance from a credit card or loan to another credit card. Transferring balances with a higher annual percentage rate (APR) to a card with a lower APR can save you money on the interest you'll pay.

A balance transfer moves a balance from a credit card or loan to another credit card. Transferring balances with a higher annual percentage rate (APR) to a card with a lower APR can save you money on the interest you'll pay.

But there's a catch: If you transfer a balance and are still carrying a balance when the 0% intro APR period ends, you will have to start paying interest on the remaining balance. If you want to avoid this, make a plan to pay off your credit card balance during the no-interest intro period.

Credit card balance transfers are typically used by consumers who want to move the amount they owe to a credit card with a significantly lower promotional interest rate and better benefits, such as a rewards program to earn cash back or points for everyday spending.

A balance transfer credit card is an excellent way to refinance existing credit card debt, especially since credit card interest rates can go as high as 30%. By transferring your balance to a card with a 0% intro APR, you can quickly dodge mounting interest costs and give yourself repayment flexibility.

You may continue using the card as before even if you've paid the entire balance. Closing the account might have a negative effect on your creditworthiness.

Balance transfers won't hurt your credit score directly, but applying for a new card could affect your credit in both good and bad ways. As the cornerstone of a debt-reduction plan, a balance transfer can be a very smart move in the long-term.

The pros of balance transfers include saving money on interest, consolidating debt, and possible improvement in credit score in the long run. The cons of balance transfers include balance transfer fees, high regular APRs, and above-average score requirements.

You can even conduct a bank balance transfer, where you request a balance transfer with a credit card, but instead of paying off another card's balance, the funds go to your bank account.

Can a balance transfer be denied? ›

If you attempt to transfer a balance from one credit card to another card from the same card issuer, your balance transfer will likely be denied. Most issuers have restrictions on transferring balances between accounts.

Possible drop in credit score: A balance transfer might hurt your credit score in two ways. If the new card comes with a lower credit limit than your existing card, and if you close your existing card's account after the transfer, you may expect your credit utilization ratio to rise.

Balance transfer fees are typically 3 percent or 5 percent of the total balance you transfer to your new card. So, for every $10,000 in debt you move to a balance transfer credit card, you'll owe $300 or $500.

A balance transfer occurs when you move a balance from one credit card to another, and this process typically takes about five to seven days. But a word of warning: Some credit card issuers can take 14 or even 21 days to complete a balance transfer.

A credit card balance transfer done strategically — say, by moving debt from a high-interest card to one with a long 0% APR promotion — can save you a bundle in interest charges. But it's not a cure-all for debt. Sometimes, it might even hurt more than help.

You can sometimes get around this by using a balance transfer check where you write a check to yourself, deposit it into a bank account, and can use that money to pay anything you want, even a balance on a credit card from the same bank.

It costs $30 to $50 in fees to transfer a $1,000 balance to a credit card, in most cases, as balance transfer fees on credit cards usually equal 3% to 5% of the amount transferred. Some credit cards even have no balance transfer fee, but it's rare for cards that do this to also have a 0% introductory APR on transfers.

Yes! Once your balance transfer is complete, your old credit card company will process it as a normal payment. This will satisfy your minimum monthly payment requirements so you can avoid late fees and potentially negative information on your credit report.

After you complete your balance transfer, your primary goal should be to pay off the transferred balance before the introductory offer ends. You can also use this time to master your budget, monitor the progress of your credit score and get serious about using your credit cards strategically going forward.

The Chase 5/24 rule is an unofficial policy that applies to Chase credit card applications. Simply put, if you've opened five or more new credit card accounts with any bank in the past 24 months, you will not likely be approved for a new Chase card.

Is it better to cancel unused credit cards or keep them? ›

Canceling a credit card can shorten the average age of all accounts, which can negatively affect your score. If your score has already dropped due to other negative items, such as late payments or large debt balances, it's probably best to keep the account open instead of closing it.

When you apply for a new credit card, the issuer performs a hard inquiry into your credit history. A hard inquiry can temporarily decrease your credit scores. However, opening a new card can also improve your credit utilization rate, which is the amount of credit you use compared to the total credit available to you.

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

It is not bad to have a lot of credit cards with zero balance because positive information will appear on your credit reports each month since all of the accounts are current. Having credit cards with zero balance also results in a low credit utilization ratio, which is good for your credit score, too.

You could end up with a higher interest rate after the promotion. You may not save money after the balance transfer fee is added. Your credit score could be impacted. You risk creating more debt.

Can you do multiple balance transfers? Yes, you can do multiple balance transfers. Multiple transfers might be possible from several cards to one card or even several cards to several cards.

It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.

You'll need to ask the lender to transfer the money to your chosen account for it to count – you can't just withdraw it as cash and pay it in (doing so usually incurs expensive interest and fees).

The balance doesn't have to be in the consumer's name to qualify for a transfer, so if someone's new spouse has a high-interest credit card balance and they have excellent credit, a 0% APR balance transfer offer can pay off an old balance and help a couple start over together with lower debts.

We recommend checking every couple of days to see if the original card issuer has received the funds. You'll typically see it reflected on your account just like a normal credit card payment.

Which is safer bank transfer or credit card? ›

If you transfer money to a fraudster, you have no legal right to get your money back from your bank. Using a credit or debit card can provide you with more protection.

Suppose you have high-interest balances on one or multiple credit cards and you're looking to consolidate at a lower APR. You might be asking yourself, "Can you pay off a credit card with another credit card?" In short — yes, you can pay a credit card off with another credit card, there's more than one way to do it.

Transferring your balance can be a really good way to get on top of your debt because you can stop paying a high interest rate on an existing credit card and instead pay a low or 0% rate on your new balance transfer card. Be aware that you will usually have to pay a fee of up to 3% of the balance you wish to move.

A good APR is around 16%, which is the current average for credit cards. People with bad credit may only have options for higher APR credit cards. Some people with good credit may find cards with APR as low as 12%. A good starting point is looking for credit cards with 0% interest intro periods of up to 21 months.

Is a 3% balance transfer fee worth it? Yes, a 3% balance transfer fee is worth it as long as the card's balance transfer APR saves you more money on interest charges. The combination of a 0% introductory APR and a 3% balance transfer fee is usually cheaper than allowing interest to accrue at your card's regular APR.

Example of a Balance Transfer Fee

Suppose a credit card issuer offers you a promotional interest rate of 2% for an introductory period of 12 months, with a balance transfer fee of 1%. If you take that deal, the total cost of moving the entire $10,000 is $300 (the transfer fee of $100 plus interest payments of $200).

However, it's important to understand that transferring a balance to a new credit card will not close the account of the original card — the balance will simply revert back to zero.

Yes, you can use a balance transfer card for purchases — but spending may incur interest so check if this is the case. If you need to spend, as well as transfer existing debts, look for a credit card offering 0% on both balance transfers and purchases. They are usually referred to as “all-round” cards.

In some cases, a balance transfer can positively impact your credit scores and help you pay less interest on your debts in the long run. However, repeatedly opening new credit cards and transferring balances to them can damage your credit scores in the long run.

But in general, a balance transfer is the most valuable choice if you need months to pay off high-interest debt and have good enough credit to qualify for a card with a 0% introductory APR on balance transfers. Such a card could save you plenty on interest, giving you an edge when paying off your balances.

What is the disadvantage of credit transfer? ›

If you're considering transferring a balance from a rewards card, you might be worried about losing your rewards points. However, balance transfers are generally treated as a payment from your new creditor (the balance transfer card) to your old card. The good news is, you won't lose any rewards earned.

Balance transfer fees are typically 3 percent or 5 percent of the total balance you transfer to your new card. So, for every $10,000 in debt you move to a balance transfer credit card, you'll owe $300 or $500.

Credit card providers typically determine the amount of debt you can move in relation to your credit limit. Many issuers are generous, giving cardholders the ability to transfer their full credit limit, but in some cases, your transfer limit may be capped at 75 percent of your overall credit limit.

A balance transfer occurs when you move a balance from one credit card to another, and this process typically takes about five to seven days. But a word of warning: Some credit card issuers can take 14 or even 21 days to complete a balance transfer.

A balance transfer can take anywhere from a few days to several weeks, depending on the credit card company, but they're typically done within five to seven days. Knowing what to expect can help you ensure that you stay caught up on payments.

The process works by transferring money from one account to another and offering a low interest rate as a reward to you. You generally receive a credit card that allows you to charge things or receive cash. You may wonder if there are advantages and disadvantages to balance transfers. The answer is yes.