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Balance Transfers

How a Balance Transfer Works—and Who It’s Best For

A balance transfer is a way to save money by moving one or more debts to a lower interest credit card. Many balance transfer credit cards charge 0% interest for a year or longer. So with good planning, you could pay off debt without accruing any interest charges at all.

To decide whether a balance transfer card is right for you, weigh the benefits of a transfer against other fees you'll pay and the likelihood that you'll pay off the debt by the end of the promotional period. Here's how a balance transfer works, and who stands to gain the most from it.

How Does a Balance Transfer Work?

Generally, you'll need a good or excellent credit score—670 or higher on an 850-point credit scoring scale—to qualify for a balance transfer card. Ideally, you'll apply for a card that offers a 0% annual percentage rate (APR) for 12 months or longer, allowing you to pay off debt while saving money on interest.

Once you're approved, the card issuer will confirm your credit limit, which is also the maximum amount you can transfer to the card. You'll ask the card issuer to transfer eligible debts to your new card, and it will pay off those balances either directly or by issuing you a check.

The card issuer may charge you a transfer fee, commonly 3% of the balance. You'll receive a new credit card with a balance in the amount you've transferred plus the fee.

As an example, say you transfer a $3,000 balance to a card with a 3% balance transfer fee and a 15-month interest-free period. With the new card, you'd pay off $3,090 at $206 a month and pay no interest. If your previous card had an APR of 17%, even if you committed to no longer making charges on it and paying off the balance in 15 months, you'd still save $351 in interest by transferring the balance to the new card.

What Types of Balances Can You Transfer?

You can move a credit card balance to a new card from a different issuer, but typically, you're not allowed to transfer a balance from one card to another that's issued by the same company or any of its affiliates. That could include airline or store credit cards. For instance, Citi won't approve a balance transfer from an L.L.Bean® Mastercard® to a new Citi card because they're both issued by Citibank.

Beyond credit card debt, the type of debt you can transfer to a new balance transfer card varies by company. You may be able to move personal loans, for instance, directly to a balance transfer credit card. Or the new card may provide physical balance transfer checks you can put toward other accounts, like auto loans, home equity lines of credit or payday loans. The amount these checks pay toward your other accounts will then move to your balance transfer card at the promotional APR.

Plan not to make new purchases while you pay down balances on the new card. Otherwise, even if you pay off the charge by the end of the month, interest might accrue on both the purchase and the transferred amount.

What to Consider Before Transferring a Balance

No matter what type of balance you plan to transfer, consolidating debt with a balance transfer card requires evaluating many pros and cons. The process can lead to significant savings, but only if it's thoughtfully planned and executed.

Advantages of a Balance Transfer

  • Lower interest rates: The biggest benefit of a balance transfer is the opportunity to use the 0% promotional APR to pay off debt, particularly if you have high-interest credit cards and loans. That could also mean getting rid of debt faster.
  • Simplified bills: Consolidating multiple payments into one means not having to keep track of several bills. When you move balances from three credit cards to your new card, you'll have only one credit card bill to keep track of. That could help you monitor bills more closely, paying them on time and protecting your credit score.
  • Better terms: Depending on the balance transfer card you choose, you may be able to take advantage of better terms than your previous cards offered, such as no late fees or the ability to pick your own payment due date. Some balance transfer cards also offer cash back rewards on purchases. But those are only useful if you wait to make purchases until you pay off your transferred balance—and plan to pay your bill in full each month thereafter. Otherwise, you risk losing out on interest savings and adding to your debt.

Downsides of a Balance Transfer

  • The possibility of a higher APR: Once the promotional period is over, your APR will jump, and any unpaid balance will be subject to interest charges. That's why it's so important to make sure you'll get rid of your debt before then.
  • Balance transfer fee: You'll often pay a fee to transfer a balance. While it's typically 3% of the transferred amount, it could reach 5%. A limited number of cards, however, don't charge a fee on balances transferred within a certain number of days of opening the account.
  • Credit limit restrictions: When you apply for a balance transfer card, the issuer will assign you a credit limit. You won't be able to transfer balances that exceed that limit, which could restrict how much debt you consolidate. If you need to choose, transfer the debt with the highest interest rates to save as much money as possible.

Is a Balance Transfer the Right Option for You?

A balance transfer could make sense for you if:

  • You have good or excellent credit, which qualifies you for attractive balance transfer offers. You generally need a credit score of 670 or higher.
  • You have debt with a high interest rate that you can pay off within the promotional 0% APR period. You don't have to include all your debt in the transfer, but bringing down the APR on even a single credit card balance could free up money to pay down other debts.
  • You've found an appealing balance transfer offer. Depending on your credit, issuers may target you with offers for particularly long 0% APR periods or cards that come with no-fee transfers. Before agreeing to any offer, compare it with other cards so you can choose the one that will save you the most and provide the benefits you want.

On the other hand, a balance transfer might not be the best approach if:

  • You can pay off your existing balances within six months. It's likely not worth going through the process of a balance transfer if you can send more than the minimum to your balances and pay them off the traditional way.
  • You're not prepared to stop charging purchases on the card. Adding to your transferred balance negates the benefits of your new card, since you're less likely to pay it off within the promotional time frame. If you want to get out of debt but you rely on credit cards to pay for necessities, consider discussing your situation with a certified credit counselor at a nonprofit organization. They can help you consider budgeting and debt reduction tactics beyond debt consolidation.
  • You won't qualify. Without the credit score to match, a balance transfer credit card might not be possible for you. But you're not out of luck. You can work on improving your credit score, or opting for a debt consolidation loan that might have more lenient credit requirements—but that will also come with a higher interest rate than 0%. If the rate is lower than what you were paying previously, it may still be worth considering.

How Do You Make a Balance Transfer?

To begin the balance transfer process, and to make the most of your card:

  1. Choose the right balance transfer credit card. That includes checking your credit score so you know whether you're likely to qualify when you apply. Pulling your own credit score won't hurt your credit. You can do so for free through many online services, including Experian's, which will also provide a free credit report.
  2. Verify the credit limit. You may receive a limit that is less than your total debt, or less than the balance of your highest interest credit card.
  3. Make sure you understand all of the card's terms and conditions. Check for its fees, transfer and purchase APR, the length of its promotional period, and the circumstances under which you could lose access to the 0% APR deal, including making a late payment.
  4. Determine how much to transfer. This is necessary if the credit limit will require you to make a partial transfer. Prioritize moving a balance with a high interest rate, and calculate how much transfer fees will cost you.
  5. Verify with the issuer whether you can make the transfer online, and ensure you have the necessary information handy, including the original account number, to do so.
  6. Continue making payments on your previous balances until your new card's issuer confirms the transfer is complete. If you've moved a full balance from one card to another, consider keeping the original card open (but avoiding making charges). That will ensure you don't inadvertently shorten your credit history, which accounts for 15% of your FICO® Score* . If the card carries a hefty annual fee, though, and you're concerned you can't afford it, closing the card may make sense.

Will a Balance Transfer Affect Your Credit Score?

Like opening any new account, transferring a balance to a new credit card will affect your credit score. Here's how:

  • It will result in a hard inquiry. This occurs when the credit card company checks your credit to confirm you're a good candidate for the card. It will appear on your credit report, and could briefly negatively affect it, but is only of concern to lenders if it's one of many credit card inquiries in a short time (with the exception of rate shopping for an auto or home loan, which won't count against you as long as you do it in a two-week period). Plan to apply for a card you've been preapproved for, or that your research shows you have an excellent chance of qualifying for.
  • Your credit utilization rate might decrease, positively affecting your score. If you leave old accounts open after transferring them and don't take on new debt, you're using 0% of those credit limits. Plus, as you pay down debt on the new card, you're using less and less of your available credit. Since amounts owed relative to your total credit limit is one of the top contributors to your credit score, keeping available credit high and debt low could boost your score.

The Bottom Line

A balance transfer is one of the savviest ways to reduce debt. For the privilege of gaining a new customer, credit card companies will offer desirable terms and conditions that can help you gain control of your finances.

But to truly take advantage of the arrangement, make sure you're able to pay off the amount transferred before your APR rises. A card that offers a long 0% APR promotional period, like the Citi Simplicity® card, for instance, could be a good option if you have a lot of debt to pay off. The Citi® Double Cash card offers a slightly shorter 0% APR time frame but lower balance transfer fees. Compare how much you'd pay in fees and save in interest with any potential card, and feel proud knowing you're giving your financial health the attention it deserves.

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