What Is a Balance Transfer?
In plain English
A balance transfer is the process of moving debt from one or more credit cards to a new credit card, typically to take advantage of a lower or promotional 0% APR offer. It allows you to pay down principal faster by reducing or eliminating interest charges during the promotional period, which usually lasts twelve to twenty-one months.
How Does a Balance Transfer Work?
After being approved for a balance transfer card, you provide the new issuer with your existing card account details and the amount you want to transfer. The new issuer pays off the old balance and adds it to your new account, usually charging a balance transfer fee of 3% to 5% of the transferred amount. Transfers typically take one to two weeks to complete.
What Are the Costs of a Balance Transfer?
Most balance transfer offers charge a fee of 3% to 5% of the transferred amount upfront. For a $5,000 transfer, that is $150–$250. Despite this fee, the math often favors transferring if you are paying 20%+ APR on existing debt. You must also be disciplined: if you do not pay off the balance before the promotional period ends, the remaining balance converts to the card's standard APR, often 20%+.
Who Should Consider a Balance Transfer?
Balance transfers are best for people with a concrete plan to pay off the debt during the promotional window. Divide your total balance by the number of promotional months to find your required monthly payment. If you can commit to that amount, a transfer can save hundreds or thousands in interest. They are less suitable for those who may run up new charges on the old card, doubling their debt problem.
Frequently asked questions
Can you transfer a balance from any card to any card?
No. You generally cannot transfer balances between cards from the same issuer. For example, you cannot move a Chase balance to another Chase card. You must transfer to a card from a different bank. Also, you typically cannot transfer more than your new card's credit limit allows.
Does a balance transfer hurt your credit score?
Opening a new card for a balance transfer triggers a hard inquiry and lowers the average age of your accounts slightly. However, if the transfer significantly reduces your utilization on the old card, the net effect on your score may be neutral or even positive. The key is not running up new debt on old cards.
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Related terms
Credit Card APR
APR stands for Annual Percentage Rate — the yearly interest rate charged on unpaid credit card balances. Understanding your APR is essential to knowing the true cost of carrying debt.
Introductory APR
An introductory APR is a temporary promotional interest rate — often 0% — offered to new credit card customers for a set period. After the period ends, the standard APR applies.
Credit Card
A credit card is a revolving line of credit that lets you borrow money up to a set limit for purchases, then repay it over time. Used responsibly, it builds credit and may earn rewards.
Credit Utilization
Credit utilization is the percentage of your available revolving credit that you are currently using. It is one of the most influential factors in your credit score.
Credit Limit
A credit limit is the maximum amount you can borrow on a revolving credit account like a credit card. It is set by the lender based on your creditworthiness.