Balance Transfer Credit Cards

A balance transfer is when a credit card user pays down existing debt with a new credit card, thus transferring the original debt to the new card and shifting the borrower’s repayment obligation from the original lender to the bank or credit union providing that new card. It’s important to note that transferring a balance doesn’t pay off the debt or reduce the amount owed, but it does pay off the original lender.

Many credit card companies restrict which debts qualify for a balance transfer to their cards. All major credit card companies allow balance transfers between credit cards, though none allow transferring a balance between two of their own cards. Depending on the issuer, credit card balance transfers can also work with debt from car loans, student loans, small business loans, payday loans, mortgages, and HELOCs.

On the surface, a balance transfer seems like a win-win situation when you’re in debt. But just because a credit card allows balance transfers doesn’t mean doing one is a good idea. A balance transfer only works in your favor when the debt can be paid off at a lower cost than it would be otherwise.

How much will a balance transfer cost?

Step one of a balance transfer should always be figuring out if it will benefit you, so you’ll want to know how much it will cost. To figure out the cost, you’ll need to know the new card’s balance transfer fee, its balance transfer APR, and its regular APR. You’ll also need to know how much you can afford to pay toward your soon-to-be-transferred balance each month. A balance transfer calculator can help you crunch the numbers.

Hidden costs of balance transfers

The true cost of a balance transfer isn’t hidden, per se. But when you’re rushing to save on interest while paying down a debt, some costs can get overlooked. Namely, the balance transfer fee and the regular APR. Many cards have a 0% APR intro period on balance transfers as a sign-up perk, but will still charge a balance transfer fee. And the card’s regular APR will kick in after any intro period has expired.

Balance transfer fees—one-time fees charged at the time the balance is transferred—are about 2.6% on average, but some credit cards charge as much as 5%. This fee can end up being a significant expense, so be sure to convert the percentage into dollars based on your debt.

Can a balance transfer ever be free?

There are a few credit cards offering both a 0% APR intro period on balance transfers and no balance transfer fee. That’s the only way to avoid paying anything for a balance transfer (as long as you pay it off before the intro period expires), so it’s worth finding out if you qualify for one. These credit cards are only available to people with good credit or better.

A few more things to think about:

• It’s good to have a repayment plan beforehand. Use a balance transfer calculator to find out how long it will take to pay off your debt and how much that will cost you in fees and interest.
• Know the timeline of a balance transfer. Many balance transfer credit cards have low promotional APRs. But some also require you to request the transfer or make sure the balance posts to your account within a certain number of days or months after opening an account in order to receive the promotional APR. If you’re opening a new credit card account, a balance transfer takes about 3 weeks to post on average, so make sure to take that into consideration.

• The full amount of your request may not be approved. There’s no guarantee that you’ll get approved for a credit limit high enough to fit your entire debt, if your transfer request is even granted at all. If your balance transfer request is denied, you’ll either be denied completely or a partial payment will be made on your behalf, depending on your card’s issuer. Some will invite you to reapply for a lower transfer amount.
• Keep your old account open. It’s worth noting that closing the old account after you’ve transferred a balance can negatively affect your credit score. So it’s best to leave the old account open if it’s not costing you any money.

Crunching some numbers beforehand will save you money that would otherwise be spent on interest and fees, so it’s well worth the preparation.

A balance transfer is a good idea if you have good or excellent credit and make an affordable payment plan prior to applying. You generally need good credit or better to get a 0% balance transfer credit card, though these introductory periods are temporary. Most balance transfer cards have very high regular APRs, making it important to repay what you owe before the 0% period ends.

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.

You can use WalletHub’s 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. You can also check your latest credit score for free on WalletHub, the only site with free daily updates.

To do a balance transfer, apply for a credit card with a low balance transfer APR and low fees, noting the amount you want to transfer on the application, along with information about your current creditor. If your balance transfer credit card application is approved, that new card’s issuer will pay your original creditor for the amount transferred. You will then owe that amount, plus a balance transfer fee of 0% - 3%, to the balance transfer card’s issuer. If you repay the full amount of your balance transfer before the new card’s high regular APR takes effect, you could save a lot of money on finance charges and get out of debt sooner.

Keep in mind that balance transfers can take a while to process, as long as six weeks in some cases. So it’s important to keep making payments to your original creditor until the transfer goes through. Otherwise, you risk late fees and credit score damage.

How to do a balance transfer:

1. Check your credit score. Balance transfer credit cards with 0% APRs usually require good credit or better for approval. Knowing your score will make it easier to compare relevant credit card offers.
2. Find the best balance transfer card for you. Compare cards based on their balance transfer APRs, balance transfer fees, and annual fees. Also, consider how much you can afford to pay each month. Using a balance transfer calculator can help.
3. Apply for your balance transfer card. Fill out the application with your personal and financial information, including the section of the application for requesting a balance transfer. Provide the account number and the amount you want to transfer to make the request. It’s best to ask for a balance transfer when you apply because promotional 0% APR periods start as soon as the account opens.
4. Keep making payments. Keep up payments to your original creditor until the balance transfer goes through, or you could be marked as past-due. You will be credited for any payments made during this period after the transfer gets processed.
5. Receive a decision: The issuer may allow you to transfer the full amount that you request or offer to transfer part of the balance instead. Or, your balance transfer request could be denied, depending on your creditworthiness and available funds. It may take a few weeks to get a decision.
6. Pay the rest of the balance. Try to pay off a transferred balance before your new credit card’s low introductory APR expires. A high regular rate will apply to any balance remaining at that time. If you still have a balance on your original account, continue repaying that as well.

It’s also good to note that you can transfer multiple balances to the same credit card. But that can lead to paying a lot in balance transfer fees and interest, if you’re not careful.

Now that you’ve learned how to do a balance transfer, you’re on your way to saving money on interest and getting out of debt. For more tips and info, check out WalletHub’s in-depth balance transfer guide.

Balance transfers usually take 15 to 25 days from when you submit a balance transfer credit card application. But depending on the issuer, it could take as few as 3 days or as many as 42. To make a balance transfer take as little time as possible, apply online so the issuer can review your application sooner.

How Long a Balance Transfer Takes by Credit Card Company:

                                                                                                                         
While you wait for your balance transfer approval, it is important to keep making payments toward the balance being transferred. You should send these to your original creditor. If you don’t, your balance could be reported as past-due. This might damage your credit standing and put the transfer at risk.

Once the credit card transfer is finalized, you will see a credit listed on your original account. It will look like a payment was made. And your old balance will be listed on your new balance transfer credit card account. Remember, unless you have a 0% transfer card, interest will start to accrue as soon as your balance gets transferred.

For more information, check out WalletHub’s guide on how balance transfers work.

A balance transfer does not affect your credit score directly. Balance transfers aren’t flagged on your credit reports, and credit scoring companies don’t specifically factor them into their evaluation criteria. However, a balance transfer can lead to changes in your financial profile that will affect your credit score.

For example, a balance transfer can lead to a high credit utilization rate. Generally, you’ll want to use up less than 30% of a card’s credit limit. A balance transfer can wind up consuming much more than that, which isn’t great for your credit score.

In the best-case scenario, you’ll transfer your balance to a card with a credit limit much higher than the amount you need to transfer as well as pay off the original credit account in full. Then, the transferred balance won’t max out your new card, and you’ll be able to bring your old card’s utilization to zero.

Making payments on time is a crucial part of both maintaining a good credit score and using a balance transfer to your credit score’s advantage. Paying off the balance that you transfer and avoiding unnecessary debt in the future will also positively affect your credit score.
                                                                                                              
You can read WalletHub’s in-depth guide on balance transfers for more information.