How Credit Card Balance Transfers Work: The Complete Guide

Written by Amy Pennza

A credit card balance transfer is exactly what it sounds like: moving your balance from one card to another.

If you do your research and handle the move wisely, transferring debt from one credit card to a different card can save you money on interest and help you pay off the principle more quickly.  

In this guide, we'll take a look at how balance transfers work, the pros and cons of doing so, and how to do a balance transfer, step-by-step.

What is a balance transfer?

As we mentioned, a balance transfer is simply moving a credit card balance from one credit card to another

Credit card balance transfers can work in a couple of different ways. 

In some cases, you might want to do a straightforward shifting of debt from a single card to another, but you can also consolidate several cards into one.

Some cards also let you transfer different types of debt, such as auto or home loans, student loans, or personal loans. 

However you do it, a balance transfer is usually a good idea if you can shift your credit card debt to a card with a more favorable interest rate. You still owe the same amount of money, but you'll save in the long run by paying less interest.

Keep in mind, though, that balance transfers typically come with fees, and you should also check your card's terms for any limits on how much debt you can move over.

Furthermore, zero or low introductory interest rates can balloon to much higher rates once the introductory period ends.  

Fees for balance transfers

While a handful of credit cards don't charge transfer fees, these are few and far between, and you usually need excellent credit to qualify for one.

The majority of cards will charge you to transfer debt, and on average, you can expect to pay anywhere between 2 and 5% of the amount you're transferring. Some cards will also charge a flat transfer fee or a percentage of the amount being transferred, whichever is less.  

Depending on the balance you want to move over, transfer fees can really add up. For example, if you want to transfer a $6,000 balance, and your transfer fee is 5%, you'll pay $300 in fees.  

Before you make a transfer, check the math to make sure you're not paying more in transfer fees than you're saving in interest. Also, keep in mind you'll still have to pay interest on the debt you move over once it's added to your new card. 

Introductory APR periods

To encourage people to open a new card, some credit card companies offer a 0% APR, but there's usually a catch in that these 0% rates are only good for a certain amount of time. Introductory APR periods vary, with many lasting for 12 months or more. 

Once the introductory period ends, however, you'll have to begin paying interest on your balance.

You can get around this by making a plan to pay off your balance within the introductory period. 

Balance transfer rewards

These days, many credit cards offer a number of perks, including cash bonuses and money back on purchases.

If you use your credit card for business or to finance a large purchase, these rewards can be quite lucrative.

The downside is that most cards exclude balance transfers from their rewards program, which means you probably can't earn points or cash back on any debt you pull over from another card.

How much can you transfer?

Most credit cards put a cap on how much you can transfer—usually a percentage of your credit card limit.

For example, consider a card with a $15,000 limit.

If the card's terms let you transfer up to 75 percent of your limit, at first glance this mean you can transfer up to $11,250.

However, you have to factor in any transfer fees, which will lower the total amount you can move over.   

When should you transfer a balance?

As with anything that involves your finances, there are pros and cons to transferring a credit card balance. 

Pros

  • Save money on interest. Lower interest rates are probably the top reason why people choose to do a balance transfer. If you're currently paying high interest rates on your cards, moving your debt to a low-interest card or a card that offers a 0% introductory APR can save you money and let you put more of your payments toward the principal. 
  • Consolidate your payments. If you juggle several different credit cards at once, staying on top of monthly payments can be a chore. Consolidating your debt to a single card can make it easier to keep track of your payments, and help you feel like you have more control over your debt. 
  • Get more favorable terms. Transferring your credit card balance to a new card can land you more favorable terms along with a better interest rate. Look for a card that offers generous grace periods, little or no penalties, cash back on purchases, and other rewards.

Cons

  • Balance transfer fees. It's rare to find a credit card that doesn't charge a transfer fee. Rates vary, but you'll typically see transfer fees ranging from 2 to 5%. If you want to transfer a $5,000 balance, and the transfer fee is 4%, that's $200 just in fees. In some cases, high fees can negate the interest savings.
  • Introductory interest rates expire. Introductory interest rate offers can seem like a great deal, but they usually don't last forever. That 0% APR might save you a lot while it lasts, but remember you'll have to start paying interest on the money you transferred once the rate expires. In some cases, the post-introductory interest rate can be just as high, if not higher, than your current rate. 
  • More debt in the long run. Most people do a balance transfer to save on interest and hopefully pay down their debt. Zero or low introductory interest rates can help you accomplish this, but not if you fail to stick to an aggressive debt repayment plan. If you let your low interest rate expire without paying down your balance, you might end up paying more interest over time. This can leave you with more debt than you started with.

Bottom Line

Moving debt from one card to another can pay off, but only if you handle it the right way.


Before you start a balance transfer, make sure you understand the benefits as well as the potential drawbacks.

Choosing the right balance transfer card

If you think a balance transfer might be a smart financial move, you'll want to make sure you pick the best card.

Here are three things to consider as you shop around. 

1. How much is the transfer fee?

As stated above, transfers fees usually fall somewhere between 2 and 5% of the amount you want to transfer.

In most cases, the credit card company will incorporate this fee into your balance rather than making you pay it as a separate charge, which might be convenient, but it can also make you forget about the fee altogether.

If you're transferring a big chunk of money, transfer fees can make your overall balance jump more than you realize. This means you pay more interest over time, and that could end up creating more debt rather than saving you money. 

2. What's the introductory APR?

One of the main ways credit card companies attract new customers is by offering low or 0% introductory APRs. Some cards let you pay zero interest for 12 months or more, which can really help you tackle your debt.

However, introductory APRs are a promotional tool designed to get you in the door. In other words, they don't last forever.

Pay attention to the card's interest rate once the introductory APR expires, and make sure you have a plan to reduce your balance by the time your higher rate kicks in.  

3. Will you really save?

Here's where you'll have to do some math. Once you know the new card's transfer fee and APR, you can run the numbers to determine if transferring your balance is worthwhile.

Be honest with yourself about your ability and willingness to stick to a payment plan.

If you can pay off the balance while your APR is at 0%, a balance transfer is probably worth it.

But if your current card's interest rate is more favorable than the rate you'll get once the new card's promotional rate expires, you might not save over time. 

Types of balances transferable to a credit card

Depending on the credit card you use, you might be able to transfer more than just credit card debt.

Many cards allow you to transfer debt from a store card, such as a department store credit card, while others let you move money from an auto loan or even a student loan, and you might even be able to transfer debt from your mortgage or home equity line of credit. 

This is where you'll find quite a bit of variation among credit cards.

For example, American Express only allows transfers from credit cards and store cards, whereas Capital One permits transfers from other credit cards, auto and student loans, and personal loans.

Also keep in mind that some credit card companies won't allow you to move money from one of their cards to another. Rather, any transfer must come from a different lender.

How a balance transfer could save you money

Don't take it for granted that a balance transfer will save you money. Low or 0% introductory rates might be appealing, but it's important to crunch the numbers before you commit.

For example, consider a balance transfer offer with a transfer fee of 3% or $75, whichever is less.

If you want to transfer a balance of $5,000, you will pay $75 (because 3% of $5,000 is $150, and your transfer fee is capped at $75).

If your introductory APR is 0% and you pay off the balance in 12 equal installments, that's about $422 a month.

Now assume your current credit card has a 15% interest rate.

If you pay a fixed payment of $422 each month toward a $5,000 balance, it will take you 13 months to pay off your debt, and you'll pay about $445 in interest alone.  

In this example, it's obvious that $75 is a better deal than $445, which means transferring the balance makes sense.

In fact, even if the transfer fee was a strict 3% with no $75 cap, you would still see a savings.

However, this example also assumes you'll stick to a 12-month repayment plan to take advantage of the 12-month 0% APR and avoid being charged interest on your new card.

What if you can't find (or qualify for) a card with a 0% introductory APR?

Depending on the interest you pay now, a balance transfer might still save you money.

For example, if you carry a $3,000 balance at 30% interest on your current card, your annual interest totals $900.

If your balance transfer card offers a 20% APR with a 3% transfer fee, you would pay a $90 transfer fee plus $600 per year in interest. The new card offers a much better deal.

As you're running the numbers to determine if a balance transfer makes sense, check out some of the credit card calculators available online.

Most major credit card companies offer calculators that let you see how much you'll pay in interest, as well as how long it will take you to pay off your debt.

For example, the Capital One credit card calculator lets you calculate your monthly payment amount along with the amount of time you need to pay off the balance.   

How to do a balance transfer in 6 easy steps

If you're looking to do a balance transfer, here's how you can do one in six easy steps:

1

Check your current balance and interest rate

Before you start looking for a new card, find out what you're paying now. Check your current card's interest rate, as well as your balance.


If you want to consolidate more than one card, check the rates and balances on each credit card.


This way, you can compare your current payment to what you'll pay after the transfer.

2

Pick the right balance transfer card

If you're stuck with a high-interest credit card, your next step is to shop around for cards with better rates.


Since you know you want to transfer your balance, search for "balance transfer cards", which  will bring up credit cards specifically designed for balance transfers.


Read the fine print to check for transfer fees, how long the introductory APR lasts, and what your interest rate will be once the promotional period ends.

3

Read the fine print

Fees and introductory interest rates aren't the only things you need to watch out for. All credit card agreements come with fine print, and balance transfer cards are no exception.

For example, some balance transfer cards require you to make the transfer within a certain period of time after you open the card. If you fail to transfer the money within this window, you could lose out on the introductory interest rate.

Additionally, most credit card companies base their transfer limits on the borrower's credit score. If your score is low, you might not qualify for as high of a transfer limit as someone with good credit.

4

Apply for the new card

When you feel confident that you've chosen the best balance transfer card for your situation, it's time to apply.


These days, you can usually apply online, and some credit card companies offer approvals within minutes. In other cases, you'll have to wait a day or two to find out if you're approved. 

5

Submit your balance transfer

Once you're approved for your new card, you can start the balance transfer process. To do this, your new card should have a department you can call or webpage you can visit to submit your transfer request.

Whether you go online or talk to a card representative over the phone, you should have your old card account number handy, along with the amount you want to transfer.


Be prepared for the balance transfer to take a few days. While it processes, you'll still need to stay up to date on your current card's monthly payments. 

6

Pay off the balance on your new card

Once your debt transfers to your new card, it's important to pay it off as quickly as possible. The goal is to reduce your debt, which means taking advantage of the favorable terms offered by balance transfer cards.


If your new card offers 12 months of 0% interest, make it a goal to pay down as much as you can within this timeframe. 

3 ways a balance transfer affects your credit score

Balance transfers don't show up on your credit report —at least not directly—nor do the credit bureaus consider them when they calculate your credit score

However, a balance transfer can affect your credit indirectly. Here's how:

1.

Changing your credit utilization. Your credit utilization is the ratio of your overall available credit compared to how much you use. If your new credit card has a higher credit limit, this could help improve your credit utilization.

This is why you should keep your old card open, even after your transfer the balance. By keeping the account open and paid in full, you maintain that available credit amount. 

2.

Transferring without paying down debt. Balance transfers can be a good thing, but they can hurt you if you misuse them. In some cases, people use balance transfers like a game of hot potato, passing their debt from one 0% interest card to the next.

The problem is they never pay off the debt within the introductory interest period. In many cases, people get stuck with high interest rates and even more debt, which sinks their credit score. 

3.

New credit. The amount of new credit you carry accounts for 10 percent of your credit score, which is why you should be careful not to open too many new accounts at once. 


In most cases, opening a new card for a balance transfer won't affect your score for long. If your credit is good to begin with, you probably won't see much, if any, change in your score. 

If you need help repairing your credit score, a good credit repair company like Lexington Law might be a good option for you.

Balance transfer vs a personal loan

If you're in a rut with a high-interest credit card payment, a balance transfer isn't your only option for breaking the debt cycle. In some cases, a personal loan (such as Self Lender) could be a better choice. 

Here are six things to consider if you're trying to decide which one to pursue. 

1. What type of debt are you trying to pay off?

Balance transfer cards often limit what kinds of debt you can transfer. While some cards are more flexible than others, you might have a hard time finding a card that will let you shift debt from a student loan or mortgage.

This is where a personal loan might be a better fit. In most cases, lenders don't put restrictions on what you're allowed to do with the funds from a personal loan.

Additionally, a personal loan might work better if you're trying to consolidate balances from several different credit cards.

Because some credit cards only permit transfers from other card issuers, you might hit roadblocks if you have multiple credit cards from the same lender. 

2. What are the interest rates?

One of the main draws of balance transfers is their low or 0% introductory interest rates. However, these promotional rates often end after a certain period of time.

If you fail to pay off the debt in time, you could get stuck with a much higher interest rate than you bargained for. 

You probably won't be able to find a personal loan that offers an introductory APR, but the overall interest rates on personal loans tend to be lower than those for credit cards. If you know you won't be able to pay off your balance within your credit card's introductory APR, you might be better off going with a personal loan.

3. What fees are involved?

Balance transfers typically come with a fee or minimum transfer charge.

By contrast, personal loans may offer zero loan origination fees, or a flat fee for processing your application. Each lender varies, and some may also tack on prepayment penalties or loan closing costs.

Before you commit to a balance transfer or a personal loan, it's important to add up all the fees to see exactly how much you'll pay.

4. Impact on your credit score

Whether you go with a balance transfer or a personal loan, either option could affect your credit score.

Any time you open a new account, be it a credit card or a loan, it counts as new credit. Too much new credit can hurt your credit score, which is why it's important to space out new accounts over time. 

Additionally, you should pay attention to your mix of credit types, as this is one of five factors that make up your credit score.

If you have several different credit cards, opening up a balance transfer card might make your credit mix too homogenous. If a personal loan will diversify the credit types on your credit report, it might be worth exploring. 

5. Monthly payments

Generally, you can expect the monthly payments for a personal loan to be higher than what you'd pay each month on a credit card.

This is fine if your budget can handle it, but it can get you into trouble if you struggle to keep up with your financial obligations.

The last thing you want is to fall behind on your payments, as this will negatively impact your credit score.

This is why you should calculate how much you can afford to pay before deciding between a balance transfer and a personal loan.

6. How much do you need to borrow?

You should also consider how much credit you need for the goal you're trying to achieve.

Are you trying to pay off $3,000 in credit card debt, or are you looking to get a better interest rate on your $30,000 student loan balance? 

Generally, credit cards offer lower limits than a personal loan.

For example, you might only quality for a credit card with a $25,000 limit, but your bank is willing to offer you a personal loan up to $100,000.

If you need to refinance a larger amount of money, a personal loan might be the better option.    

6 balance transfer tips

So you've done the math, you have the budget to make on-time payments on your credit card each month, and you think a balance transfer might be a good option for you.

Here are six tips to make sure you're making a solid financial decision. 

1. Look for a card with no transfer fees

Transfer fees might seem insignificant at first glance, but they can cancel out the interest savings of a balance transfer. To get around this, look for a credit card that offers transfers with a 0% APR and no transfer fee.

In some cases, the credit card company will waive the fee as long as you make the transfer within a specific amount of time.

2. Know when the introductory APR ends

Credit card companies know how to get people in the door. They usually offer a 0% APR for a certain period of time as a way of enticing people to transfer their balance.

If you don't pay it off in time, however, you could get stuck with a less than favorable interest rate for any amount you fail to pay off in time. 

You should also check to see if the card issuer charges any penalties for late payments. In some cases, credit card companies charge a higher interest rate for late payments—sometimes called a penalty rate. 

In other cases, card lenders will cancel the 0% interest rate if you miss a payment. 

3. Avoid charging any new purchases to your card

The goal of a balance transfer is to get a zero or low interest rate so you can focus on paying off your debt. If you start charging new purchases to your card, you make it harder to achieve this goal.

Also, some credit card companies exclude new purchases from their promotional interest rates. This means you might pay 0% interest on your balance transfer, but you'll pay the regular interest rate for anything new.

4. Make your monthly payments on time

As with any credit card, you don't want to miss a payment, as even a single missed payment can hurt your credit score. Depending on how much you transfer, you might need to make more than the minimum payment required by your card's terms.

Additionally, remember that some credit card companies will cancel your introductory interest rate if you miss a payment.

If you have a tough time staying on top of due dates, see if your credit card company offers automatic payments. Some lenders even offer discounts or incentives if you enroll in their auto-pay plan.   

5. Don't cancel your original card

Once your balance transfers, you should still keep your original card open.

Canceling the account reduces your total available credit, which can hurt your credit utilization and lower your credit score. 

6. Make a repayment plan

Before you apply for a balance transfer card, know exactly how much you can pay each month, as well as how long it will take you to pay off your balance. If you go into the transfer process with a repayment plan in mind, you're more likely to stick with it.

Too often, people go into a balance transfer without any clear idea of how they're going to pay down their debt. When you know you don't have to pay interest for 12 months or more, it can be tempting to overspend.

This can negate the whole purpose of transferring a credit card balance to a card with more favorable terms. 

Final thoughts

If you're looking to reduce your debt, a balance transfer can be a straightforward solution.

But it's important to do your homework before you move any money around.

Check out the fine print, including transfer fees, APRs, and limits on how much you can transfer.