In this article:
Looking to move some credit card debt to a balance transfer card and save on interest? There's often a limit on the size of total balance transfers equal to the account's credit limit. You typically can't transfer a balance greater than your credit limit—and you won't know your credit limit until you're approved for your account.
How a Balance Transfer Works
When you make a balance transfer, you are moving all or part of an existing balance from one or more credit cards to another, usually to take advantage of better interest rates. The transferred amount on your balance transfer card becomes subject to the rates and terms of the account.
Once you're approved for a balance transfer card (or decide to take advantage of a special balance transfer rate on an existing card), the new credit card will pay off your existing balances as instructed by you, or send you checks that you can then send to the accounts you're paying off.
A balance transfer can be advantageous when the account you're transferring your balance to has a lower interest rate, or possibly even a 0% annual percentage rate (APR) introductory financing offer. However, most credit card accounts will impose a balance transfer fee of 3% or even 5% of the amount transferred, which will reduce the amount of money that you can save. Also keep in mind that if you don't pay off the transferred amount by the end of the promotional APR period, the balance will be subject to the ongoing interest rate, which will be much higher than the introductory rate.
How Much Can You Transfer?
The amount of money you can transfer from one account to another depends on the card issuer. In most cases, you'll only be able to transfer an amount equal to the available balance on the account you're transferring it to. And you will usually only know the size of your credit limit once you've been approved for a new account. The card issuer will consider your credit history and income to determine that credit limit.
If you have several high credit card balances and want to transfer them to more than one 0% APR card, you might think it's a good idea to apply for multiple new balance transfer credit card accounts. It's not. By doing so you would incur multiple hard inquiries on your credit reports, which will lower your credit scores.
What Credit Score Do You Need for a Balance Transfer?
There's no minimum credit score required to perform a balance transfer, but the better credit you have, the lower the interest rate you'll qualify for.
Having a good credit score could also result in getting an account with a larger line of credit. In general, when it comes to credit cards that offer 0% APR introductory financing, you'll usually have to have good or excellent credit to be approved for the cards with these offers. You may qualify if you have fair credit, but not likely for the most competitive offers.
Is a Balance Transfer the Right Choice for You?
Balance transfers can be a great way to help you pay off your credit card debts, but they're not right for everyone. First of all, you need a balance transfer credit card with a significantly lower interest rate than the card where your balance currently is.
Next, you'll want to make sure you know what the balance transfer fee is, and if it will be worth paying. For example, if you are just a few months away from paying off your balance, it will probably not be worth incurring a 5% balance transfer fee just to save a few bucks on interest charges. But if you can save interest charges that would have exceeded the cost of the balance transfer fee, and can pay off the balance before the 0% APR offer ends, then transferring your balance can be a great way to help you pay off your credit card debt.
What Are Balance Transfer Alternatives?
If a balance transfer isn't the right option for you because you either can't qualify for one or the cost would exceed the benefits, there are still some alternatives to help you reduce your credit card debt. For example, you could try contacting your card issuers to see if they will offer you a lower rate on your existing balances. You can also consider a debt consolidation loan, which is a single loan with a lower interest rate than you're paying on your card balances that you can use to pay off multiple other outstanding balances.
Another option is a debt management plan, which is where a credit counselor works with your creditors to reduce your monthly payments and interest rates, and possibly even waive penalties. Debt management plans are especially geared to those with a large amount of debt.
The Bottom Line
Balance transfers can be an easy way to enjoy a lower interest rate on your existing debts, or even avoid interest altogether for a limited amount of time. By taking the time to understand how credit card balance transfers work, along with other options, you can choose the best strategy to help you pay down your existing balances.