Balance transfer cards can help qualified borrowers reduce the cost of existing debt and pay off what they owe faster than they would otherwise. Here’s how it works: A borrower uses a balance transfer credit card to pay off some or all of a credit card or loan balance owed to another bank or credit union. This effectively transfers the borrower’s payment obligation, meaning he or she now owes the balance to the issuer of the balance transfer credit card, which may offer lower finance charges.
For a balance transfer card to work to perfection, it must offer low enough rates and fees for long enough that the borrower can repay the transferred balance before a high regular APR takes effect. Most credit cards allow balance transfers. But certain offers are classified as “balance transfer credit cards” because they have relatively low APRs and fees on transfers.
In most cases, you will have the option of requesting a balance transfer when you apply for a new credit card. You should be able to submit a request with an existing account, too, as long as you aren’t already carrying a big balance from month to month. But certain account terms, like 0% intro APRs and $0 transfer fees, may only be available for a limited time after account opening. And some credit cards don’t allow balance transfers at all. You can learn more about how the process works below.
Here’s how balance transfer cards work:
- You request to move a balance to a new credit card.
- The issuer considers your request and approves it if they think you are creditworthy.
- The new issuer pays the original lender for the approved transfer amount.
- Your balance moves to the new card, and any applicable balance transfer fee is added to the principal of the balance you’re transferring.
- You must pay at least the minimum amount required by the due date for each billing period to keep your account in good standing. Interest may apply immediately, unless the card has a 0% introductory APR, in which case the regular APR will kick in after it expires.
When you’re comparing balance transfer offers, it’s worth calling your current credit card’s issuer to see what it can offer. Say that you plan on doing a balance transfer unless you get a lower interest rate. Your rate may not be reduced to 0%, but even a slight APR reduction will help you save while your application for a 0% transfer is being processed.
For more information, check out WalletHub’s balance transfer guide.