Connect with us

Hi, what are you looking for?

Credit Management

Is a Credit Card Balance Transfer Right For You?

A credit card balance transfer lets you move debt from one card to another that has a lower interest rate. Many credit card issuers offer a 0 percent, or otherwise low, introductory APR on balance transfers.

If you’re like the average American who has thousands of dollars in credit card debt, you might be considering a credit card balance transfer. Such offers can be a real solution for lowering your credit card interest rate and paying off your balance sooner; however, there are some caveats to those benefits that you need to understand before taking the balance transfer leap.  

Why Consider a Credit Card Balance Transfer?

A credit card balance transfer lets you move debt from one card to another that has a lower interest rate. Many credit card issuers offer a 0 percent, or otherwise low, introductory APR on balance transfers. With a 0 percent APR, all of your monthly payment goes toward your accumulated debt rather than on the interest it is accruing, which in turn helps you pay down your balance sooner than you would on the original card.

Is a credit card balance right for you

What to Consider with a Credit Card Balance Transfer

Like any financial vehicle that you are considering, be a smart consumer and investigate all the terms and conditions of a credit card balance transfer in order to determine if it is right for your particular situation. Look for the following:

Interest Rate

The most advantageous balance transfer offers come with a 0 percent APR; however, those are reserved for consumers with the highest credit scores. MagnifyMoney says such offers typically go to consumers with credit scores of 740 or higher. Those with scores between 670 and 739, i.e., good credit, can likely find some pretty good offers, too.

But Money Under 30 points out that, “When you have poor credit, your options for a balance transfer can be very limited.” Don’t give up without trying though. You may still be able to qualify for a card with a balance transfer offer that includes a lower APR than that of your current card. Just don’t expect it to be 0 percent. 

Introductory Period and Beyond

One of the most important things to understand about a balance transfer offer is that the 0 or low APR does not last forever. It is only good for the introductory period being offered by the credit card issuer. This is typically anywhere from six to 18 months, and again the best offers, i.e., those with the longest introductory periods, go to those with the highest credit scores.

Once the introductory period ends, the card assumes its regular APR on your balance, which is why you need to know that rate before you decide to complete a balance transfer. If the regular APR is higher than your current card’s, it may not be worth it, especially if you can’t pay off your balance during the introductory period.

Transfer Fees

Another thing to consider is the transfer fee that may be applied to the transaction. Credit Card Insider says that, “Most credit card issuers charge between 2% and 5% of the balance” for this fee.

Before you apply for or accept a balance transfer offer, find out exactly how much the transfer fee will be. You can also ask the issuer to waive the transfer fee. Some automatically offer such a waiver if “the transfer is made within a certain number of days of opening the card.”

Interest Rate for New Purchases

The 0 percent APR on a balance transfer is a great deal, but it only applies to the balance being transferred. The card’s regular APR will be applied to any new purchases charged to the card. In order to achieve your goal of paying off your debt sooner, avoid putting any new purchases on the new or old card. Otherwise, you could end up even further in debt than you already are.

Penalties

Credit Karma warns that some issuers penalize late or missed payments on a balance transfer by applying a penalty APR to it. The penalty may also include canceling out the 0 or low introductory APR rate altogether. Find out ahead of time if that will be the case with the balance transfer you are considering. If so, consider setting up a recurring automatic payment of at least the monthly minimum amount due. 

Do Your Homework Before You Apply

Now that you understand how credit card balance transfers work, find out if a specific deal is right for you by using an online balance transfer calculator. Both creditcards.com and Bankrate offer them for free, letting you determine within minutes if a balance transfer will actually save you money.  If you determine a balance transfer is not the right fit for you, you may want to consider a personal loan, which often offers fixed terms and fixed rates so that you understand exactly how long it will take you to pay off your debt.

Read more

Join our mailing list

Latest

Budgeting

Budgeting can seem like an afterthought in today’s digital world. Thanks to mobile banking and the internet, there’s no need for most people to...

High gas prices prompting discussion on budgeting High gas prices prompting discussion on budgeting

Best Practices

The new year is a perfect time to get your finances in order. Check out our top tips on how to manage your money...

Consumer Financial Protection Bureau staff look at new consumer protections Consumer Financial Protection Bureau staff look at new consumer protections

Financial Wellness

What comes to mind when you hear the words “Consumer Financial Protection Bureau”? It’s pretty straightforward that it’s an official government agency, but beyond...

Quarterly Investor Update Quarterly Investor Update

Investor Center

Strong credit performance driven by emphasis on disciplined risk management and long-term sustainability

Investor Center

Today we are sharing performance data from the Prosper Portfolio for May 2022. Highlights from the Prosper Performance Update – May 2022: Performance Update...

Investor Center

Today we are sharing performance data from the Prosper Portfolio for April 2022. Highlights from the Prosper Performance Update – April 2022: Performance Update...

You May Also Like

Establishing Credit

The challenge of establishing new credit is obvious: lenders make decisions based on credit reports. However, without a credit history, building a credit history...

Establishing Credit

Creditors can look at your credit history to determine whether or not you will be able to pay back a loan – whether that...

Product Announcements

We know how important your credit score is to your financial well-being. That is why we have brought your FICO® Score to your Prosper...

Best Practices

What is consumer debt? It may sound scary, but part of financial empowerment is getting comfortable with the idea that well-managed debt is not...