Are balance transfers bad?

Yes, a balance transfer is a good idea if you need months to pay off high-interest debt and you are able to qualify for a 0% balance transfer credit card deal.

What you should know before making a balance transfer:

• You generally need good credit or better to get a 0% balance transfer credit card. Most balance transfer cards have very high regular APRs, making it important to repay what you owe before the 0% period ends.... read full answer
• You’ll also want to make sure the new card’s balance transfer fee is as low as possible. The average balance transfer fee is 2.53%. But, from time to time, there are credit cards that have both 0% APR on balance transfers and no balance transfer fees.
• You should use a balance transfer calculator to compare the cost of repaying what you owe with your current card versus taking advantage of the best balance transfer offers.

If you’d like to know where you stand before applying for a balance transfer card, check your latest credit score for free on WalletHub.

No, balance transfers do not hurt your credit score directly, though transferring a balance can indirectly lead to credit score damage. When you apply for a balance transfer credit card, for example, it will generate a hard inquiry on your credit report, causing a slight dip in your credit score.

If you transfer a balance to an existing credit card account, however, there is no hard inquiry and no credit score damage. A balance transfer could still result in high credit utilization, though, and allow you to rack up more debt than you can afford to repay. Both of those things can hurt your credit score.

So, the act of transferring a balance itself won’t affect your credit, but it will indirectly alter several key components of your credit profile, from utilization to the age of your accounts. These changes might lower your score a bit in the short term. But over time, interest savings and the ability to pay off your debt faster should make transferring a balance a net positive for your credit score.

You can use WalletHub’s free credit score simulator tool to get a sense of how a balance transfer might affect your credit score.

How Balance Transfers Can Help or Hurt Your Credit Score

• Credit Inquiries Hurt: If you apply for a new balance transfer card, the resulting hard inquiry will likely cause a slight dip in your credit score for up to 12 months.
• Lower Account Age Hurts: Adding a new balance transfer card will reduce the overall age of your accounts, which can have a slight negative impact on your score.
• Increased Utilization Hurts: Keep an eye on how the transfer affects your account’s credit utilization. Making a transfer will usually add 3%-5% to your debt due to balance transfer fees. If your utilization is over 30% of your credit limit, that’s not good for your score.
• Missed Payments Hurt: If you don’t continue to make payments to your original creditor while the balance transfer is being processed, your credit score will suffer. Balance transfers can take up to three weeks, or be completed in just a few days, after you make a request or apply for a card.
• Reduced Utilization Helps: If you leave your old credit card(s) open, adding a new card will reduce your utilization ratio across all accounts, assuming no additional spending. The utilization on the card you transferred the balance from will drop, and it will increase on the card you transferred the debt to.
• Low Interest Helps: Balance transfer cards often have 0% introductory APRs. This gives you the chance to pay off your balance faster, since the full amount of your payments will go to the principal rather than interest. This is good for your score long-term.
• Less Debt Helps: A balance transfer can help you reduce your debt load. That’s important because how much debt you owe is a key ingredient in your credit score. The less, the better, since people with little-to-no debt are in a more stable position financially.

Bottom Line

Balance transfers won’t hurt your credit by themselves. But they affect other elements of your credit that could bring your score down a little temporarily. Still, the benefits will outweigh the negatives in the long run, as long as you plan to repay most, if not all, of your balance during your card’s low introductory APR period.

Where people get into trouble is trying to use a balance transfer to support unsustainable spending habits, thinking 0% balance transfer credit card offers are always available. They’re not, and learning that the hard way is a very expensive mistake. So make sure to use a balance transfer calculator to make a payment plan.

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. Generally, when you transfer a balance, you’re shifting high-interest debt to a credit card with a lower interest rate.... read full answer

Pros and Cons of Balance Transfers

Balance Transfer Pros

Save money on interest.
Many credit cards offer a 0% APR on balance transfers, and the average introductory rate lasts for 13 months. The best cards might even offer an intro APR for 21 months. Currently, the average regular APR among new credit card offers is 20.16%.

So, if you transfer your balance from a high-interest credit card to a card with a low introductory APR on balance transfers, you will have the opportunity to save on interest charges. To make the most of your balance transfer card, make sure to pay down as much of your balance as you can during the intro period. Keep in mind that the remaining balance will be subject to the card’s regular APR.

Consolidate debt.
If your credit limit allows it, you may be able to combine multiple credit card balances by transferring them to a balance transfer card. This way, you’ll need to make just one credit card payment every month. This strategy can make it easier to manage your payments.

Possible credit-score improvement in the long run.
A balance transfer card can help you decrease your credit utilization ratio, which will improve your credit score in time. When you open a new card for the purpose of transferring a balance, you will increase the amount of credit you have available every time you make a payment, which can lower your credit utilization ratio. For the credit utilization to go down, make sure to not incur any more debt in the meantime.

Better features and perks.
If your current credit card offers limited benefits and a high interest rate, transferring your balance to a new card might be a better idea. Many balance transfer cards also offer rewards and no annual fees. Some credit cards offer intro APRs on new purchases as well. If you are a frequent traveler, you may also get a balance transfer card with travel benefits and no foreign transaction fees.

Balance Transfer Cons

Balance transfer fees.
When you’re transferring a balance to a credit card with a low introductory APR on balance transfers, you will most likely be charged a fee. Transfer fees on credit card offers currently average 2.53% of the amount transferred. No balance transfer fee credit cards are rare and usually require excellent credit for approval.

High regular APR.
Balance transfer cards usually come with high regular APRs. So, before transferring a balance, make sure to choose a card with an intro APR that gives you enough time to pay down your balance before the intro rate expires. Otherwise, your remaining balance will be subject to a high regular APR. It’s also worth using a balance transfer calculator to plan out the necessary payments and estimate your savings.

Above-average score requirements.
Most credit cards with balance transfer offers require good to excellent credit for approval. This is also the case for credit cards with a low regular APR. So, if you have fair credit or lower, it will be hard to find a worthwhile balance transfer card. Students are a noteworthy exception as they can get approved for credit cards with great balance transfer deals even with limited credit.

The risk of building more debt.
A new credit card will result in a higher total credit limit, and if you don’t use your credit card responsibly, this may lead to building more debt. So, you have to be disciplined enough not to make purchases on your old credit card. If you’re having trouble managing your spending, it might be better to close your old credit card account after transferring your balance. However, doing so may impact your credit score.

Possible drop in credit score for a short period of time.
When you apply for a new credit card, this will result in a hard inquiry which may temporarily drop your credit score by a few points. You can get an idea of how much a hard inquiry will affect your credit score by using WalletHub’s free credit score simulator.

Ultimately, if you consider all the pros and cons and decide a balance transfer is right for you, the next step is choosing a balance transfer card. There are many cards on the market, but some are better than others. It’s important to do your research and choose the card that best suits your financial needs.

Best Balance Transfer Credit Cards in 2023

Alternatives to Balance Transfer Credit Cards

If you’re not convinced that getting a balance transfer card is the right call, there are other ways to pay down your debt. For instance, using a debt consolidation loan might be a better fit if you qualify for a competitive interest rate and a large enough loan. Factors such as your credit score, income, and existing debt play a significant role in determining your interest rate and loan amount.