The catch with balance transfer credit cards is that a balance transfer fee usually applies and you will have to start paying interest on the remaining balance when any low-interest introductory period ends. Credit card companies also limit the types of balances you can transfer, and opening a new card leads to temporary credit score damage.
In general, balance transfer credit cards are very helpful, but knowing about their potential downsides is useful so that you can pay off your debts as efficiently as possible.
Here’s the Catch With Balance Transfer Credit Cards:
Fees: Not all balance transfer cards charge a balance transfer fee, but most do. This fee is typically 3% to 5% of the total balance transferred, and the average is 2.53%.
Expensive regular APRs: Many balance transfer credit cards offer introductory APRs of 0% for 6 to 21 months on transferred balances. But after this period expires, any remaining balance is subject to an expensive regular APR, which is [ccl-avgapr-bt-intro] on average for a balance transfer card.
Limits on the types of balances you can transfer: Different credit card companies allow you to transfer different types of debts to their credit cards. It’s important to find out which types of debts are eligible before you apply for a specific credit card.
Temporary credit score damage: When you apply for a new balance transfer credit card, the hard inquiry into your credit report will cause your credit score to drop by around 5 to 10 points. Luckily, you can recover from this with a few months of responsible credit use.
The good news is that the benefits of balance transfer credit cards outweigh the drawbacks. Balance transfer credit cards can help you save a lot of money on interest and get debt-free sooner. You can also use these cards to consolidate multiple debts into one monthly payment.
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.
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.
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.
No, balance transfers are not inherently bad, but they can be bad for your finances if used recklessly. When you transfer a balance, you're ideally shifting high-interest debt to a credit card with a lower interest rate. The best balance transfer credit cards feature 0% APR offers for a specific number of months, but these introductory APRs eventually expire. If there's a balance remaining at the end of the introductory period, it will accrue interest daily at the card's regular APR. And if you're late in paying, the issuer could revoke the introductory APR. Your remaining balance would then be subject to the regular APR or even a higher … read full answerpenalty APR in some cases.
Opening a balance transfer credit card account may affect your credit score because it can trigger a hard inquiry on your credit report. But that's the case with most credit cards. The most important thing is to use a balance transfer to reduce the cost of your debt, not just prolong spending habits that really can't last in the long run. So avoid repeated balance transfers. While you may get a break on interest for a while, this practice may limit your chances of getting approved for another balance transfer card in the future.
You also need to consider balance transfer fees. The average balance transfer fee is about 3% of every balance you transfer. That could end up being very costly. While there are cards that have no balance transfer fees, you often get a longer 0% introductory term in exchange for a fee, and that may save you money in the long run. Also, you can only transfer balances up to your card's credit limit (or sometimes a lower balance transfer limit), and that includes fees.
When used responsibly, balance transfers are a useful tool that help you reduce the cost of your debt. Just make sure their cost, including APRs and fees, is lower than your existing debt. It's a good idea to use a balance transfer calculator to figure out which card will save you the most money at the end of the day.
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. Most balance transfer cards require a 700+ credit score, and most also have high regular APRs, making it important to repay what you owe before the 0% period ends. 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 fee is just under 3%. But, from time to time, there are credit cards that have both 0% APR on balance transfers and no balance transfer fee.
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