How Credit Card Balance Transfers Work

Have you found yourself in credit card debt? Are you paying interest every month? Does it feel impossible to make a dent in your credit card balances because you’re paying so much interest?

A balance transfer is a way to move credit card debt from one credit card to another with the goal of saving money on interest.

When you’re paying interest on a credit card, transferring debt to a card with a lower interest rate can help you reduce the amount of interest you’re charged as you pay it off.

Think of a balance transfer as a way to pay off your credit cards with another credit card.

Some balance transfer credit cards come with a 0% APR for a limited time. This means you can temporarily pause interest while you pay off your credit card debt.

Remember, you can avoid credit card interest on most cards by paying your balance on time and in full every month. But if you’re already in debt and have a plan to pay it off, a balance transfer may be one way you can strategically reduce the amount of interest you pay.

Keep in mind that a balance transfer is not magic. You will still owe the debt. If you don’t pay your debt back in a timely manner, you could still end up paying lots of extra money in the form of interest.

Keep reading to see if a balance transfer will work for you:

• How balance transfers work
• Deciding whether a balance transfer is a good idea
• How balance transfers impact your credit
• How to actually do a balance transfer

What Is a Credit Card Balance Transfer?

You might have heard the term “balance transfer credit card,” but a more accurate description is “credit card offer favorable to balance transfers.”

Pretty much any credit card will let you transfer a balance away from it. Many credit cards will let you transfer a balance to them as well.

Some credit cards have terms that are more favorable for incoming balance transfers:

• Lower fees on incoming balance transfers
• Lower regular interest rate on balance transfers
• Limited-time low introductory APRs on balance transfers

Fees for balance transfers

Balance transfers usually aren’t free.

Even those credit cards offering an introductory zero percent interest rate generally come with a cost in the form of a balance transfer fee, which will typically be charged as a percentage with a predetermined minimum.

Most credit card issuers charge between 2% and 5% of the balance as the fee for the transfer, with a minimum fee of about $5. Some card issuers waive this fee if the balance transfer is made within a certain number of days of opening a new account.

It’s also worth noting that balance transfer fees usually show up separately from the transferred amount on the statement of the card you transferred the balance to.

Introductory APR periods

Many balance-transfer-friendly cards feature an introductory period with a lower APR on new balance transfers.

Banks often use these offers to attract new customers. This is why you can’t, for example, transfer a balance from one Citi credit card to another Citi card — the bank isn’t getting a new customer or taking on any new (potentially very profitable) debt.

The introductory APRs on these balance transfer offers are often 0% for 12, 18, or 24 months. While a 0% APR can be very helpful for avoiding interest, they can also open the door to more credit card debt. 

We think it’s important that you have a plan for how you’ll pay off all (or at least most) of the debt during the introductory period. It’s typically not wise to transfer a balance to buy some time without a solid plan in place.

Some people (hopefully not you!) will go through this unfortunate scenario:

1. You open a credit card with a 0% APR balance transfer offer.
2. You transfer debt to that card and then only pay the minimum payments every month.
3. You continue to rack up more credit card debt on the original card the balance was transferred away from.
4. Your 0% introductory period runs out. Now you’re stuck paying high interest on two cards. You’re deeper in credit card debt and you don’t have the opportunity to transfer either balance to another card.

The scenario above is a great way to dig yourself into a deep financial hole and get buried in debt. Also, increasing your credit card debt after you transfer a balance to a new card might severely damage your credit. Higher credit card balances could increase your credit utilization rate — a major factor in credit scores.

If something prevents you from paying off a transferred balance before your interest rate increases, it may be wise to start looking for another balance transfer opportunity. Another transfer could help you avoid a steep increase in the APR. Yet be aware that continually transferring balances from one card to another will keep you in credit card debt. This pattern can limit your financial freedom and make it harder to achieve or maintain good credit scores.

What types of balances can I transfer?

Credit cards can be used for balance transfers from many different kinds of accounts. Other credit cards are the most obvious choice, but auto loans, student loans, personal loans, and other installment loans can be eligible as well.

You won’t be able to transfer a balance between cards from the same card issuer. So you can’t transfer a balance from one Chase card to another, for example, or one Bank of America card to another. Credit card issuers don’t want you to take advantage of them by just transferring a balance back and forth between their cards.

Other than that, most credit card companies will allow you to transfer a balance from practically any account that requires a monthly payment.

You can even conduct a bank balance transfer, where you request a balance transfer with a credit card, but instead of paying off another card’s balance, the funds go to your bank account. Then, the amount of money that went to your bank account has to be paid off as usual. This could be helpful if you need cash in a pinch.

But when it comes to installment loans, it’s not necessarily a good idea to transfer the balance to a credit card just because you can.

Installment loans don’t hurt your credit much compared to revolving credit card debt. Even if you have a very large installment loan, it’s better than owing the debt on a credit card. Installment loans often feature lower interest rates than credit cards anyway. So, if you have an affordable interest rate, it may be best to leave your installment account parked with the same bank and pay it off as quickly as you can.

Of course, there are a few scenarios where it might be a good idea to transfer an installment loan to a credit card with a 0% APR. This could be true if your installment loan is very small, or has a very high APR. In these instances, you might save some money by transferring the debt to a low-balance credit card. You’ll have to do some math to figure out the total amount you’ll end up paying in each case. Also, be prepared to take a potential hit to your credit scores if you transfer installment debt to a revolving account.

Balance transfers sometimes come with certain terms and limitations. American Express, for example, requires the account from which the debt is coming to be in your name. Be sure to check the terms that come with your card to learn exactly what you can do, and contact your card issuer if you have any questions.

How long will a balance transfer take?

Balance transfers are never instant. In some cases, transferring a balance takes only a few days, while in others you could have to wait much longer.

You can generally expect a balance transfer to take two to three weeks at most when you’re dealing with major issuers.

Here’s an idea of what you can expect from seven big-league issuers, as a rule of thumb.

• American Express: 5 – 7 days
• Bank of America: Up to 5 days for existing accounts and 14 days for new accounts
• Capital One: 3 – 14 days, depending on whether you requested the transfer online or by mail
• Chase: Usually within 7 days, though it may take up to 21 days
• Citi: 2 – 21 days; depends on whether you’re transferring to a new or existing account, and which companies are involved
• Discover: Up to 7 days for existing accounts and 14 days for new accounts
• U.S. Bank: Up to 14 days

Keep in mind that these times may vary significantly depending on the situation. Contact your issuer directly if you’d like to discuss its policies or the status of your own transfer. You may also be able to check the status of your transfer online.

Should I Transfer My Balance?

Getting a card with a zero-interest introductory rate, especially if that teaser rate is good for 21 months, can save hundreds of dollars in interest and help you pay off your balance much sooner. As long as you’re not seen as risky by creditors, there may be some good balance transfer offers available to you.

Here are some signs a balance transfer might be a good fit for you:

• You have a better paying job after a period of unemployment or underemployment and you’re ready to lower your debt.
• You’ve committed to stop overspending and you’re ready to create a plan to pay off your debt.
• Your credit rating is good to excellent and you think you may be able to qualify for a new card with an attractive balance transfer offer.

Unfortunately, if you have poor credit scores or you’re going through a period of financial distress, you may not be able to qualify for a new credit card with favorable balance transfer terms. If this describes you, you may need to consider other options like credit counseling or perhaps even bankruptcy.

It’s up to you to decide whether a balance transfer offer is wise in your situation. Like many tools in your financial toolbox, this one is sharp. Develop a strategy for using it to get what you want and wield it with a healthy supply of discipline.

Even if you can qualify for a balance transfer offer, consider your plan for paying down the debt before you apply. You may put your financial future at risk if you transfer a balance to defer interest and hope your situation will improve without a solid plan to pay off your debt.

If you’re considering transferring a balance away from an installment loan, think carefully. Paying off installment debt with a credit card may not be wise, especially if the loan amount is large. In most cases you’ll be better off to leave installment loans alone, as long as the APR isn’t too high.

Examples: Two Simple Balance Transfer Scenarios

Here are two simple examples that show how a balance transfer might save you money.

Imagine you owe $1,000 on a credit card with a 20% APR. Unfortunately, you’re only able to pay $30/month toward the debt.

If you pay only $30 every month and don’t spend any more on the card, it would take over 4 years to pay off the entire balance. In that time, you’d also be spending over $470 in interest on what was originally a $1,000 balance! When you only pay the minimum required on a card, most of what you’re paying is interest. Paying the minimum payment can make it feel impossible to make a dent in your debt.

Card with 0% intro APR on balance transfers

Building on the example above, let’s say you apply for a new credit card that offers a 0% intro APR for 18 months on balance transfers. You’re approved with a $2,000 credit limit.

You transfer your entire balance from the first card to the new card and still have $1,000 worth of available credit on the new account. This particular card’s terms feature no fee on balance transfers made within the first 60 days after a new account is opened. You take advantage of the offer and are charged $0 in balance transfer fees. The card has an introductory 0% APR period on balance transfers for 18 months. Afterward, a regular APR of 20% takes effect — the same regular APR charged on your previous card.

If you continue to pay $30 each month after transferring the balance, your payments will go much further. For the first 18 months, the entire $30 you pay each month is applied to your principal (the $1,000 you borrowed) instead of being applied toward interest. In month 19, when your regular interest rate kicks in, you’ll owe $437.67. If you continued paying $30 per month at that point, it would take an additional 18 months to pay off the remaining balance, because you’d be paying interest on the remaining balance as you pay it down. The total interest you would pay in the remaining 18 months after the 0% introductory APR would be $75.65.

In this example, even though the two cards have the same regular APR, you would save money and get out of debt faster. Because of the introductory 0% APR, you’d pay off the original $1,000 debt over one year sooner than the original scenario. You’d also save almost $400 in interest.

Card with 8% APR on balance transfers, but no intro APR

Let’s imagine a second scenario. You’re approved for a card with a $2,000 credit limit. It doesn’t have a 0% introductory APR, but instead features a regular APR of 8% on all purchases and balance transfers. The terms of the card require a fee for balance transfers — calculated as 5% of the balance or $10 (whichever is greater).

You transfer the entire $1,000 balance to this card. Since 5% of $1,000 is $50, and that’s more than $10, right away you will owe $1,050 on the new card. If you pay $30 each month with this 8% APR, it would take you over 3 years to pay off the balance, and you’d pay $134.70 in interest.

In this example, since the APR is lower, you’d end up paying off the original $1,000 debt about a year sooner. You’d also save over $300 in interest. It’s a good deal, but not quite as good as the offer of 0% APR for 18 months with no balance transfer fee.

Hopefully these two examples illustrate how a balance transfer might be able to save you money. They should also demonstrate why it’s important to shop around when you’re considering a new balance transfer credit card. Finding the best offer might help you save more money and get out of debt sooner.

Just take note that both of the examples above make an important assumption. They assume you’re not accumulating any additional credit card debt while you’re paying off your existing debt. Taking on more debt after a balance transfer can dig you into a deeper financial hole. Increasing your credit card debt (and especially your credit utilization) could have a negative impact on your credit, as discussed in the next section.

How Will a Balance Transfer Affect My Credit?

Some people are hesitant to open a new card with a balance transfer offer because they fear it might lower their credit scores. Depending on your credit history, that might be true in the short term. But a balance transfer can still be a great move for your credit and your wallet in the long run.

Opening a new credit card and transferring a balance to it can affect your credit scores in several ways:

• When you apply you’ll typically get a hard inquiry on your credit reports, which can lower credit scores slightly.
• Opening a new credit card can lower your average age of accounts, which can lower credit scores.
• Having a new credit card will increase your total credit limit, which can lower your credit utilization; this can be good for your credit scores.
• If you transfer several balances over to the new card you can reduce your number of accounts with balances, which can be good for your scores.

What happens when you open a balance transfer credit card?

When you open a new credit card to transfer a balance from an older card, it’s what happens before and after the balance transfer that impacts your credit most. To take advantage of a zero percent interest balance transfer, you must first qualify for the offer. In order to qualify, you have to apply.

Inquiry for credit

When you apply for a balance transfer card, the credit card issuer will pull your credit. At this point, an inquiry will be added to your credit report.

When it comes to your credit scores, the impact of hard credit inquiries is often overstated. Inquiries are largely responsible for ten percent of FICO® Scores. But credit scores only count inquiries made in the last 12 months. Unless you have numerous inquiries in the last year, inquiries usually aren’t a big deal where your credit scores are concerned.

Inquiries are a normal part of the process of applying for new credit. Just remember not to apply for too many new credit cards (or other forms of credit) in a short amount of time. Otherwise, those hard inquiries could potentially become a problem.

New account opening vs. “time in file”

Another factor that impacts your credit scores is the age of your credit card accounts.

If your application is approved, you’ll receive a new credit card and the card issuer will begin reporting the new account on your credit reports.

Your length of credit history is largely responsible for fifteen percent of your total FICO® score. Credit scoring models consider the date each of your credit accounts were opened to determine the age of each account individually and the average age of your accounts in aggregate. You may see a slight drop in your credit scores when you open a new account because of this factor. Yet, as with the inquiry, the credit score impact is typically minor.

Credit card balances and revolving utilization

When you open a new credit card account, the new credit limit (and any balance you have) will impact your credit scores because your revolving utilization rate will change.

Revolving utilization measures how high your balances are in relation to your credit limits. It’s largely responsible for 30% of your FICO® credit scores.

The lower your revolving utilization drops, the higher your credit scores will typically climb. This is why maxing out one or more credit cards can potentially drop your credit scores quickly.

When you open a new balance transfer credit card — or any credit card for that matter — the credit limit on the account will be factored into your total or aggregate revolving utilization. The addition of the new account will most likely increase your overall available credit.

And therein lies the silver lining: Opening a balance transfer card may actually help to boost your credit scores. The key is to keep the old credit card open after you transfer the balance to the new card. 

You should also avoid charging new debt on the original card. Otherwise, you’re defeating the purpose of the introductory balance transfer offer and could be setting yourself up for a credit and financial disaster in the future.

Number of accounts with balances

There’s another potential way a new balance transfer card might improve your credit scores as well. If you open a new credit card and transfer outstanding balances away from several existing credit card accounts at once, you may lower the number of accounts with balances that show up on your credit reports.

FICO® scoring models consider the number of accounts with balances on your credit reports — the fewer, the better. When several of your existing accounts are updated to show $0 balances, your credit scores may benefit. Again, just make sure not to close your original credit cards after they’re paid off or you could risk damaging your scores by accident.

How To Transfer a Credit Card Balance

Once you’ve decided you want to do a balance transfer, the process is pretty easy.

1. Figure out where the balance is going

You need to know where you’re transferring the balance. Some options may include:

1. A credit card you already have that charges a lower interest rate than what you’re paying on another account
2. An existing credit card that has extended a 0% or low-rate balance transfer offer to you
3. A new credit card you just opened, possibly with a special offer favorable to balance transfers

2. Determine credit available

Verify the credit limit and available credit on the card you’re planning to transfer the balance to. Make note of how much credit is available.

Also, look for any limits on balance transfer amounts. Some cards may limit how much you can transfer, and that may not be equal to the credit limit.

3. Understand the terms and fees

Read and understand all the terms of the card you’re transferring the balance to which you’re transferring the balance. Here are some things to consider about the terms and fees:

• If there’s a special 0% intro APR on balance transfers, make sure you understand the length and conditions of that special period. If you don’t have a plan to pay off the balance completely by the time the 0% introductory period is over, you might need to reconsider whether a balance transfer is a good idea for you.
• If you’re applying for a new card, be sure the rate you apply for is the rate you get. Check the terms before you apply for the new card and again when you’re approved. Depending on your credit history, the introductory APR may not be the 0% you were expecting.
• If you plan to use the card for purchases, see if the new APR applies to both transferred balances and new purchases. Some cards will only apply the 0% APR to the transferred debt and charge a much higher APR for new purchases.
• Read the fine print of your balance transfer offer. See if the card issuer will apply interest retroactively to the date the balance was first transferred if the debt isn’t paid in full by the end of the introductory period. This possibility isn’t very likely with popular balance transfer cards. However, if a card issuer does charge retroactive interest it could greatly increase the overall cost of the transfer if you don’t pay it off in time.
• Check the card terms for any balance transfer fees and take those into account. These fees could increase the overall amount of debt you owe, at least in the short term.

Balance transfer offers vary. It’s important to read the full terms and conditions of any offer (and any credit card) to be sure you understand everything that will happen if you make a balance transfer. In the following example, making a balance transfer at the intro APR will affect the interest rate for purchases and how interest is calculated on purchases:

4) Decide how much you want to transfer

Next, figure out how much you want to transfer. There are a few things you’ll need to consider:

• How much credit is available on the card you’re transferring the balance to?
• Is there a limit to how much money can be transferred?
• Will a fee for the incoming transfer be added to the account you’re transferring a balance to? If so, how much?

Balance transfer fees could reduce the amount of debt you can transfer (if you’re aiming to use the maximum allowed).

5) Initiate the transfer

Finally, when you understand the terms and know how much debt you want to move to the new account, you can initiate the transfer.

You initiate the transfer using the card you’re transferring the balance to.

You can generally initiate a balance transfer on the website of the card where the debt will be moved. You probably won’t have to do anything special on the website of the card you’re paying off.

If you can’t find out how to initiate a balance transfer on the issuer’s website, call the phone number on the back of your card for help. Once you start the transfer, you should see the balance on the card you’re transferring to increase. The balance on the card you transferred from should decrease. You may need to allow around a week for these changes to take place, but the timing can vary between card issuers.

6) Pay off your credit card debt!

Congrats! Now that you’ve made the balance transfer, make sure you pay off your credit card debt before the reduced rate expires to eliminate or avoid interest. You may be tempted to close the card you transferred the balance away from, but it’s probably better for your credit scores to leave that card open and not use it.

You may also want to take this opportunity to think about your spending habits. It’s important to avoid accumulating more credit card debt while you’re paying off the transferred balance so you don’t end up in the same situation again.

One strategy for paying off a transferred balance during a 0% introductory period is to set up an automatic payment plan. Automatic payments may help you pay off your card balance before the low-rate period ends. Use a payment calculator to determine how much you will need to pay each month to get to a $0 balance before the introductory APR ends.

Here’s an example. If you take advantage of a zero percent offer that lasts 12 months, a $5,800 balance transfer becomes roughly $6,000 once balance transfer fees are applied. In this scenario you’d need to pay around $500 per month to take care of the full balance by the time the introductory rate expires.

If you’re not sure you’ll be able to avoid adding more debt to the new card balance, you should think carefully before getting the account and transferring your balance. Depending on the offer, the new APR could be higher than the APR on the card you left behind, once the introductory rate ends.

Another smart strategy is to transfer the balance over to your new account and then put both cards away until you get the balance down to zero. Don’t make either card an option for new purchases until you’re completely free of credit card debt.