A credit card balance transfer is when a credit card balance (debt) is transferred from one credit card to another credit card.
When Should I Use a Balance Transfer Card?
A balance transfer can be used as a tool to help you pay off or pay down your credit card debt. For example, maybe the new credit card has a lower interest rate and therefore the interest you pay on the balance would be lower.
It also might make sense to take advantage of an introductory APR period. Introductory APRs on balance transfers are often as low as 0% for 12, 18, or even 24 months. This means that during the introductory period you would pay little or no interest on the outstanding balance depending on the offer. Ideally, during this introductory period, you’re able to pay off the credit card in full and therefore pay reduced interest or avoid the interest that would be charged after the introductory period has ended.
Usually, this introductory period comes with a balance transfer fee that’s a percentage of the total balance and a fee minimum. Balance transfer fees are usually between 2-5%.
Balance Transfers Can Come from More Than Just Credit Cards
In most cases, you can also transfer balances from auto loans, student loans, personal loans, and other installment loans.
Be Careful Not to Kick the Can Down the Road
A balance transfer may be a great solution but be careful you are not “kicking the can down the road,” so to speak. If your credit card debt is because your spending exceeds your income, month over month, then a balance transfer may be no more than a band-aid. Or worse, if the introductory rate passes and the rate adjusts, it could raise your payments to a higher amount than your previous credit card!
Any balance transfer should be in addition to budget adjustments that mean you’re actually able to take advantage of that introductory rate, make large payments, and get out of or significantly reduce debt.