According to the Consumer Financial Protection Bureau, over 175 million consumers have a credit card.1 With so many people having credit cards, it’s no wonder they are also the leading cause of debt for most Americans. If you, like so many other people, are struggling with credit card debt, you may be asking yourself questions like, “How do I pay down my balance?”
Learn how credit card balance transfers work and if they could be the right choice for you.
What Is a Balance Transfer?
In most cases, a balance transfer is when a borrower moves their credit card balance over to a new line of credit to avoid high interest debt. Borrowers may get a balance transfer credit card in order to save money on interest rates or other fees/costs associated with their previous credit card.
How Do Balance Transfers Work?
The process of getting a balance transfer works similarly to getting a traditional credit card. However, many credit card companies have strict rules when it comes to balance transfers, so confirm that your desired card issuer accepts balance transfers before you apply.
If you received a balance transfer offer in the mail, take note of the interest rate, credit limit, and any additional perks offered by the credit card company. It may also be a good idea to search around online and compare potential offers from other issuers.
Make sure the rates and other perks on your new balance transfer card are significantly better than your current rates and terms. Otherwise, transferring your credit card balance may not be an effective financial decision.
Once you’ve found your new and improved line of credit, fill out an application and apply just like you would with any other credit card. Upon approval, you can request a balance transfer. Keep in mind that you most likely will have to pay a balance transfer fee and wait for your transfer to go through. Depending on the amount, a balance transfer can take anywhere from several business days to a few weeks to process.
What Is the Eligibility Criteria?
While eligibility will depend on the type of transfer, the specific card, and the card company, here are some of the most basic requirements:
|Credit Score||Most card issuers require a good to excellent credit score. Typically, a score of 670 or above is preferred.|
|Income||Applicants should have a stable income to ensure they can manage the new credit card and pay off the transferred balance.|
|Existing Debt||Card issuers will assess your existing debt levels. High debt relative to income might affect eligibility.|
|Payment History||A history of timely payments on existing credit accounts is crucial. Late or missed payments can be a red flag.|
|Credit Utilization Ratio||This represents the amount of credit you’re using relative to your total credit limit. A lower ratio (below 30%) is preferable.|
|Recent Hard Inquiries||Multiple recent hard inquiries on your credit report can indicate risk to lenders.|
|Existing Relationship with Bank||Some banks may offer balance transfer cards to existing customers based on their banking history.|
|Age and Residency||Applicants typically need to be at least 18 years old and a resident of the country where the card is issued.|
Advantages of Balance Transfer Credit Cards
Below are some of the perks borrowers can take advantage of with balance transfer credit cards.
Pay 0% Interest for a Limited Time
The allure of many balance transfer cards is the zero-interest introductory period they offer. When you aren’t being charged interest fees, you can focus on your outstanding balance and chip away at it faster.
Simplify Debt Repayment
If you have multiple credit card balances and are making several payments a month, you can combine all your credit debt onto one card. That way, you are only responsible for making one easy payment a month.
Pay Off Your Debt Faster
Depending on the deal you get on your transfer card, you may be able to shave months or even years off the time it would have taken you to pay off your original credit card balances.
Credit Card Perks or Rewards
There is also a chance you can gain access to credit card perks when you switch to a balance transfer card. Many credit card companies offer bonus rewards like:
- Travel points.
Potential Credit Score Increase
Payment history and reducing debt are two of the most significant factors that can affect your credit score. After making on-time payments and paying off your credit cards, you may see an increase in your credit score the next time you pull a credit report.
Disadvantages That Can Come With a Balance Transfer Credit Card
Balance transfer cards also come with potential disadvantages all borrowers should be aware of.
Balance Transfer Fee
Most balance transfer cards come with balance transfer fees. Balance transfer fees can be either a portion of the total cash advance amount or a predetermined fee set by the card issuer.
Problem May Resurface When Zero Interest Period Ends
While that 0% introductory interest rate is nice, it doesn’t last forever. If you are dealing with overwhelming debt and aren’t able to pay off your balance within the zero-interest promotional period, you may just end up back where you started.
Won’t Alleviate Overwhelming or High-interest Debt
Balance transfers work best for borrowers dealing with a manageable amount of debt. If you owe tens of thousands of dollars in outstanding balances, a simple balance transfer may not be enough to rectify the situation.
Hard Credit Inquiries
Applying for a balance transfer credit card means racking up another hard credit inquiry on your credit report. Credit bureaus keep track of hard credit inquiries and may penalize the credit score of borrowers who apply for too many loans or lines of credit.
How Do I Know If a Balance Transfer Credit Card Is Right For Me?
While a balance transfer credit card can be a helpful financial tool, they are not for everybody.
Consider How Long Your Debt Will Take To Pay Off
If you are currently on track to pay off your existing debt in three months or less, it may not be worth it to transfer your balance to a new card. Given the time it takes for a balance transfer to go through and the fees associated with the transaction, you may be able to pay off your debt faster without having to go through the balance transfer process.
Consider Your Payment History
Also, if you struggle with making your payments on time, a balance transfer may not be helpful. Saving money on interest rates with a new balance transfer card won’t really matter if you are racking up late payment fees instead. You may want to straighten out your payment history first and see if fixing this issue is enough to get you back on track with paying off your balances.
Consider Your Credit Score
Lastly, balance transfers work best for borrowers who have good or excellent credit scores. If you have poor or bad credit, you may not be approved for a balance card with interest rates that will make a difference in your debt.
Alternatives to Balance Transfer Credit Cards
There are also other ways borrowers can get rid of credit debt that doesn’t involve a balance transfer.
Debt Consolidation Loans
Instead of transferring your debt to a new line of credit, consider a debt consolidation personal loan. Debt consolidation loans are a way to take multiple balances and combine them into one monthly payment. Consolidating debt can also help you save money on interest rates since you are only making payments on one balance. Personal loans for debt consolidation can also come with perks like:
- Competitive interest rates.
- Flexible payment terms.
- Refinancing options.
- Quick approval and funding.
Bad Credit Loans
There are also loans for people with bad credit. Bad credit installment loans may come with slightly higher rates and lower funding amounts than a traditional personal loan, but, you may still get a better deal than you would if you went with a balance transfer.
Other Ways To Reduce Credit Card Debt
Thankfully there are other ways you can chip away at your credit card balance that doesn’t involve a balance transfer or applying for a loan. Before you inquire about a new line of credit and rack up another hard credit inquiry, consider the options below.
Stop Using Your Card or Freeze Your Account
Try setting your card aside and not using it while you are paying off your credit balance. That way, you can focus on your current debt and not have to worry about accumulating any more.
If you can’t resist the urge to impulse shop and overspend when you have your card, consider freezing your account for a while. Freezing your credit card means your account is still open, but you won’t be able to make purchases until you lift the freeze.
Get a Side Hustle or Temporary Part-time Job
If you have the spare time, consider getting a side hustle or part-time job to earn more money you can put towards your credit card bill. There are also part-time jobs that allow employees to work remotely, so you don’t even have to leave your house to earn the extra cash you need. Some popular part-time remote side hustles are:
- Online survey taker.
- Product tester.
- Virtual assistant.
- Social media manager.
- Graphic designer.
Declutter and Sell
Consider selling your gently used clothes, appliances, or other items around your home you no longer use. You can become a seller on websites like eBay or Amazon, or you can half an old-fashioned garage sale right on your driveway. After making your sales, you can put the additional income towards your credit card bill. Earn some extra cash, clean up your home, and wipe out your credit card balance all at the same time!
FAQ on Balance Transfers
Before considering a balance transfer, review your monthly income, expenses, and existing debts. This will help you determine if you can manage the new credit card payments and if a balance transfer aligns with your financial goals.
To manage multiple credit cards, set up payment reminders, prioritize paying off high-interest cards first, regularly check your statements for discrepancies, and consider consolidating your debts if necessary.
Common mistakes include not reading the fine print, transferring balances without a clear repayment plan, missing payments, and making new purchases on the balance transfer card which might incur higher interest.
No, while most credit card debts can be transferred, some types of loans or debts, such as mortgages or auto loans, may not be eligible for balance transfers.
Consider your repayment capability. If you can pay off the balance within the 0% introductory period, it might be beneficial. Otherwise, a low-interest rate offer that extends longer might be more suitable.
There’s no set limit, but frequent balance transfers can impact your credit score due to hard inquiries. It’s essential to read the card issuer’s terms and ensure you’re not just shifting debt around without a repayment plan.
Balance transfer fees are typically a percentage (e.g., 3-5%) of the amount transferred. Multiply the transferred amount by the fee percentage to calculate the total fee.
A balance transfer can lower your monthly payments if you’re moving from a high-interest card to one with a lower rate. However, to benefit from the introductory rates, you might need to meet minimum monthly payments.
Most credit card balances can be transferred, but it depends on the card issuer’s terms. Some might not allow transfers from cards within the same bank or from certain institutions.
The average interest rate varies, but many cards offer a 0% introductory rate for a set period, after which a standard APR applies, which can range from 14% to 26% or higher.
Reviews can be found on financial websites, forums, and blogs. It’s also beneficial to check consumer protection sites for any complaints or issues.
Financial blogs, forums, and personal finance websites often share success stories and strategies from individuals who’ve effectively used balance transfers to manage their debts.
Expert opinions can be found in financial publications, websites, and by consulting with financial advisors or credit counselors.
Financial education websites, credit counseling services, and personal finance blogs often discuss pitfalls and best practices related to balance transfers.
The Bottom Line on Balance Transfer from CreditNinja
Borrowers can use a balance transfer card to reorganize their credit card debt and efficiently pay off their balances. But sometimes, balance transfers can leave borrowers in more debt. Before applying for balance transfer credit cards, consider balance transfer fees, waiting times, and other potential setbacks.
If you are overwhelmed with debt, a personal installment loan from a direct lender may be better suited for your needs.