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Whenever you transfer a balance from one credit card to another, you'll pay an interest rate on that balance that may differ from what you pay on purchases made using the same card. Credit cards intended for this purpose, called balance transfer cards, often allow you to transfer your existing debt to a new account with an introductory annual percentage rate (APR) as low as 0%. While this lower rate will only last for a limited time, potentially a year or longer, transferring a balance can save you a lot of money on interest and help you pay off debt more quickly.
The average U.S. consumer has over $5,000 of credit card debt, according to Experian data. Those balances can mean sky-high interest rates that add to already high debt. If you're making small monthly payments, accruing interest may cause you to feel as though you're barely making a dent. If you've been carrying a balance and need a chance to regroup, a card with a low balance transfer APR can help dig you out of debt before it piles up any higher.
How Does Balance Transfer APR Work?
When you swipe your credit card or take out a loan, you agree to pay interest on any portion of your debt that you don't pay off in full each month. Steep rates can cause interest to outpace your payments, but a balance transfer can help you stop—or at least stall—that debt accumulation. As a bonus, balance transfers can also merge some of your monthly bills into one account and potentially lessen your chances of missing a bill and incurring late fees or late payments that can harm your credit score.
For the most part, balance transfer cards are just like regular credit cards: They can be used to make purchases and potentially accrue rewards, and the card issuer assigns interest rates and a credit limit based on your credit history and other factors. The main difference is these cards include a low-interest or no-interest introductory period for balance transfers. Card issuers offer these promotional rates to entice you to open an account and move your balances (and, therefore, your business) to them as a new customer, so you usually cannot make transfers between cards from the same issuer.
The most coveted offers boast a 0% introductory balance transfer APR. The terms usually last six to 18 months, allowing you a considerable length of time during which you won't accrue any interest on your debt. If you don't pay off your balance by the end of that timeline, however, your APR will rise to the card's ongoing interest rate, which may be quite high. Depending on your card's terms, a late payment can also forfeit your intro rate or trigger a penalty APR, so make sure to always pay on time.
Of course, few things in this world are free; it's likely your balance transfer will come with a fee. A balance transfer fee is typically typically 3% or 5% of the transferred amount. For example, a 3% fee on a $5,000 transfer would result in a total balance of $5,150 on your new card. Occasionally, creditors may waive this fee, but that's not something you should count on.
A balance transfer fee might offset your potential savings if you plan to clear your balances quickly, but the cost to transfer can be well worth the price of moving your debts for longer stretches of time.
How Can a 0% Intro APR Save You Money?
A 0% intro APR won't do you much good long-term unless you pay off or pay down your debt before it ends. You'll need to strategize a little to get the most out of your transfer, which may include tucking away your credit cards (both your old one and the new balance transfer card) and shifting your budget toward paying down your debt.
Before applying for a transfer-friendly card, sit down and map out exactly how you'll zero out your debt by the end of the promotional period, and stick to that budget. First, gather all the info about your current debts and the APR on each. Then divide your total transfer balance (including transfer fees and any annual fees) by the number of months in each offer to determine the amount you would need to pay each billing cycle to clear the balance in time.
In general, the best offers have 0% APR for the most prolonged promotional period possible, ideally with a minimal transfer fee. If you transfer a $5,000 balance to an account with 0% intro APR for 12 months and a 3% balance transfer fee (about $150), you'll pay just under $430 a month for a year to pay off the balance by the end of the promo period. The same terms over 18 months put your monthly payments at about $286, which could be more manageable for your budget.
Now imagine making a $286 monthly payment on that $5,000 balance with a 20% APR: This would take you almost two full years to pay off and cost you nearly $1,000 in additional interest.
Balance transfers often work best with an avalanche payment strategy, meaning you pay off debts with the highest interest rates first to save the most money. So, if you don't intend to transfer all your outstanding balances to your new account—or your credit limit is set too low to do so—consider moving higher-APR card balances before lower ones.
There are other ways to manage your debt when a balance transfer isn't right for your current financial situation. Look into different strategies, such as a debt management plan or debt consolidation loan, or contact your current card issuers about securing lower interest rates.
How to Choose a 0% Intro APR Balance Transfer Card
Many credit cards include balance transfers as a feature, and some are explicitly marketed for that purpose. So, what should you look for in a balance transfer card to save money?
Start with the length of the promotional period (the longer you can stave off interest charges, the better) and transfer fees. The Citi® Double Cash Card - 18 month BT offer, from our partner, has one of the longest 0.00% introductory APR around for balances transferred in your first four months with the card. Once the introductory period is over, the card's standard APR rises to a variable rate of 13.99% to 23.99%, which applies to any remaining transferred balance. One thing to watch out for: This card doesn't have an intro APR for purchases, so if you make any purchases with the card, you'll have to pay off your entire transferred balance as well as the purchase balance to avoid paying interest on your purchases. Additionally, there's a balance transfer fee of 3%, with a $5 minimum.
Also review annual fees, the balance transfer fee, foreign transaction fees and new purchase APR. In general, you should stop charging on your old cards and your balance transfer card until you clear out your debt. If you want to use your transfer card for purchases, you'll want a card that extends the promotional interest rates to new purchases, like Citi® Diamond Preferred® Card. It offers 0.00% intro APR on both balance transfers and purchases for 18 months, with an ongoing variable APR of 13.74% to 23.74% kicking in once the intro period ends. The Citi® Diamond Preferred® Card charges a 3% balance transfer fee with a $5 minimum.
If you want a card that will serve you well after clearing your debt, look for one that offers a low ongoing APR and perks, such as cash back or travel rewards. The Citi Rewards+® Card has a shorter intro APR period for balance transfers (15 months) but offers a rewards feature that rounds up your purchase points to give you more bang for your buck—just remember, you won't earn points or rewards on the balance transfer itself. Similar to the other Citi cards, you'll pay a 3% balance transfer fee ($5 minimum) on transferred balances. This card's APR climbs to 13.49% to 23.49% (variable) once the intro period ends.
Can a Balance Transfer Affect My Credit?
Creditors like to see a FICO® Score☉ of 670 points or higher to award you with an eye-catching intro APR and credit limit, so you probably won't qualify for the best transfer cards if your credit score isn't looking its best. If you can, take time to strengthen your credit score before applying for a balance transfer credit card.
Once you apply for, and open, the account, it can have effects on your credit both good and bad. A balance transfer card opens up more available credit in relation to your current balances, and can enhance your overall credit utilization rate if you keep your old account (or accounts) open and don't accrue additional debt. Credit utilization is an important factor in your credit scores.
Conversely, hard inquiries on your credit report triggered by card applications, as well as the addition of the new account, can temporarily drop your credit score. Keep this in mind if you intend to apply for additional credit in the near future. You can check your credit score and report for free to see where your credit stands before and after opening the account.
How to Make a Balance Transfer
Once you're approved for a balance transfer APR that suits your needs, you can contact your new creditor to start the process. Credit card balances are the most popular debt to transfer, but it's possible to transfer most other debts, including personal loans.
The exact steps to transfer your balances depend on the balance transfer card issuer's specific rules. You might submit your account and transfer details for the lender who will then move the debt and notify you once it's done, or you may have to pay down your debt balances using funds transferred to your bank or sent to you via a check.
Double-check each account's terms and your budget calculations in advance so you can be ready to contact your issuers and initiate any transfers immediately. Balance transfers can take as little as a week or two, but you should plan for the process to take longer, just in case. If the intro APR offers requires debt to be transferred within a certain timeframe, a delay could mean missing out on your deal.
It's vital to keep making on-time payments on any balances you're transferring until you receive confirmation that your debts are on the new card—after all, you don't want to endure any additional fees right or credit score harm in the middle of your debt-paying journey. Then, continue making at least your monthly minimum on your balance transfer so you don't lose the intro offer or get hit with a penalty APR.
The Bottom Line
A year or more with a low-interest or 0% APR intro offer can be a welcome respite while you pay down debt, but balance transfers can do more than just prolong your payment schedule. Taking advantage of a balance transfer APR can help you get ahead in your finances before interest charges get out of hand—or reel them in when they're already getting out of control.
You can define your budget and potential savings for balance transfers with a free calculator tool from Experian if starting out seems a bit intimidating. Commit to your budget and payment schedule and put the money you save on interest back into paying your debt, and you'll be on the right track for your financial future. Debt can cost you a lot less with a balance transfer done right.