Rhonda Stewart, WalletHub Loans Analyst
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.
Pros and Cons of Balance Transfers
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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.
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.
2023's Best Balance Transfer Credit CardsCompare Cards
Eric Schaefer, Financial Advisor
While this mathematically may reduce the total interest cost, you should read the fine print prior to initiating a balance transfer. Many lenders or card issuers have different and higher interest rates for balance transfers than normal spending. If the rate on balance transfers is considerably lower, it may make sense to move forward with this transaction. Keep in mind that each time you request a credit card, it will negatively impact your credit score. I would not recommend taking advantage of teaser rates and moving from card to card; make it a goal to not carry a balance at all as soon as possible.
Kathryn B. Hauer, CERTIFIED FINANCIAL PLANNER (TM)
Hi! I'm with Eric on this one! Unless you are a person who keeps meticulous records, never ever misses a payment, and reads all the fine print, you stand the chance of making a mistake or missing a fee/charge that could make this plan more costly than if you just plugged way at paying off that higher interest debt as fast as you can. I do financial stuff for a living; I pay my credit card bills in full each month; I balance my checkbook; I write and stick to a budget; I pay all things on time; I read the fine print... and I have STILL made mistakes that have cost me fees over my 54 years! So it just makes me nervous when someone enters into a plan like the one you are describing. It's one of those things that is good in theory but often hard to put into practice. Best wishes and thanks for writing!
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