Balance Transfers: Benefits, Drawbacks and Alternatives


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A good balance transfer offer can save you a bundle on interest charges. If you moved high-interest debt to a credit card with an introductory 0% APR period on balance transfers, for example, you could potentially pay it off interest-free. And there are plenty of excellent deals to be had; see NerdWallet’s best balance transfer credit cards for some top-notch options.

But before making a move, keep in mind that balance transfers also come with fees, rules about what you can transfer and certain credit requirements. If you can pay off your debt in three months or faster, or have subpar credit, the drawbacks might outweigh the benefits.

Benefits of balance transfers

Potential savings

Moving high-interest debt to a low-interest or 0% introductory APR card could save you plenty on interest charges, especially if you need months to pay off such a balance.

A low interest rate or long 0% introductory APR period doesn’t just save you money; it buys you time.

Say you were paying 20% APR on a $6,000 balance and needed at least 15 months to pay it off in full. If you transferred it to a balance transfer card with a 0% introductory APR period on balance transfers for that amount of time — even after paying a 3% balance transfer fee — you would save about $650, assuming equal payments.

Even if you can’t pay off the balance within the 0% APR period, savings can still be significant. Unlike deferred-interest offers common on store cards, balance transfer cards don’t hit you with a mountain of retroactive interest charges if you don’t pay off the balance by the end of the promotional period. Instead, you would just owe interest on the remaining balance going forward.

More time to pay off a balance

A low interest rate or long 0% introductory APR period doesn’t just save you money; it buys you time.

You’ll still have to make the minimum payments, as you would with any credit card. But because interest won’t be accruing as quickly — or won’t be accruing at all in the case of a 0% APR promotion — paying it off at a slower pace won’t be quite as expensive. That gives you more space to take care of other financial obligations.

» MORE: A just-for-debt credit card: It has one job

Convenience

Say you’re juggling multiple balances on different accounts. If you move them all to a single balance transfer card, you’ll have just one interest rate and due date to deal with, making it more manageable.

However, if you have several large balances, this probably won’t be an option. You likely won’t have a high enough limit on your balance transfer credit card to move all of them over, especially once balance transfer fees are factored in. More on that later.

Drawbacks and alternatives

Balance transfer fee

With most cards, a fee of 3% to 5% of the amount transferred is added to your balance on the new card when the debt moves over. For example, if you transfer a $5,000 balance to a card with a 3% balance transfer fee, the total that would show up on your new card after the transfer went through would be $5,150.

Credit cards come with limits, and you won’t be able to transfer debt that goes beyond that limit.

Paying such a fee can be worth it, given the savings on interest charges. But those fees can eat into your savings in a major way if you postpone paying off your debt by doing balance transfer after balance transfer.

Check out NerdWallet’s best no balance transfer fee credit cards for a list of top-notch cards that don’t charge these fees.

Limits on how much you can transfer

There’s typically no way to find out what your credit card limit on a given card will be until you apply for the card — and it may not be high enough to transfer all of your debt. If your balance transfer credit card comes with a $6,000 limit, for example, and you had a $10,000 balance to move, you could move part of it, but not all of it.

Some cards also have additional limits on how much you can transfer. For example, Chase cards don’t allow you to transfer over $15,000, even if you get a limit that’s higher than that.

If you’re looking to consolidate debt at a lower interest rate for convenience and getting 0% APR isn’t your top priority, consider a personal loan. You can pre-qualify for one without affecting your credit to see what rates you could get and how much you could borrow. The ability to see how much you can borrow before accepting the offer is a huge benefit; you won’t have to worry about being surprised with a low limit, as you might be with a credit card.

Good or excellent credit usually required

Those who could benefit most from great balance transfer cards — folks with a large amount of high-interest debt — often have trouble qualifying for them. That’s because the best balance transfer cards generally require good or excellent credit (FICO scores of 690 or higher), and carrying a lot of debt can drag down your scores. In cases where you can snag a 0% APR deal with average credit (FICO scores between 630 and 689), your credit limit might be much lower, restricting your use of the card.

If you can’t qualify for a lower-interest debt consolidation option, such as a balance transfer card or a loan, the next best thing might be paying off the balance as quickly as possible. Paying as much as you can afford above the minimum can reduce the total amount owed in interest.

Is a balance transfer worth it?

In general, the benefits and savings from doing a balance transfer to a card with a 0% APR offer far outweigh the costs if you:

  • Have good or excellent credit and can qualify for a good balance transfer offer.
  • Carry high-interest debt.
  • Need several months to pay off your balances in full.

If you can pay your debt off within three months or sooner, it might not be worth it. Paying a balance transfer fee might cancel out the benefit of any savings on interest. And if you want a higher limit for consolidating debt and don’t mind paying some interest, pre-qualifying for a personal loan could be a better option. Pre-qualifying doesn’t affect your credit, and you’ll get to see how much you can borrow and what rates you can get before actually agreeing to take out a loan.



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