If you are carrying a balance on a high-interest credit card, a balance transfer offer can give you breathing room. By moving your debt to a card with a low promotional interest rate, more of your payment goes toward the balance instead of interest. But balance transfers come with rules and traps that are easy to miss.
How a Balance Transfer Works
You move debt from one or more credit cards to a different card — usually a new card or one you already have — that offers a low promotional rate for a set period, such as 6, 10 or 12 months. After the promotion ends, the remaining balance is charged the card’s regular balance transfer or purchase rate.
The Costs to Know
- Transfer fee: many cards charge a one-time fee, often a percentage of the amount transferred.
- Promotional period: the low rate only lasts for a limited time.
- Regular rate after the promotion: often around 20% or higher on standard cards.
- Annual fee: some balance transfer cards charge one.
Example
You owe $5,000 at about 20% interest. You transfer it to a card offering a low promotional rate for 12 months with a 3% transfer fee ($150). If you pay about $430 a month, you could clear the balance before the promotion ends and save hundreds of dollars compared with leaving it at 20%.
Common Traps
New purchases may cost more
On some cards, new purchases are charged the regular rate while the transferred balance gets the promotional rate. It is often best to avoid using the balance transfer card for new spending.
Missing a payment
Some offers can end early if you miss a payment. Set up automatic payments for at least the minimum.
Not paying it off in time
If you only make minimum payments, a large balance may remain when the promotion ends, and interest will start building again.
Running up the old card
Once your old card is at $0, it is tempting to use it again. Doing so can leave you with twice the debt.
How to Use a Balance Transfer Successfully
- Divide the total balance (plus fee) by the number of promotional months to find the payment you need.
- Automate that payment.
- Stop using the old card for new purchases, or keep it only for small, planned expenses you pay in full.
- Read the terms for how payments are applied and when the promotion ends.
- Mark the end date on your calendar.
Who Should Consider a Balance Transfer
A balance transfer is a good fit if you have a clear plan to repay most or all of the balance during the promotion and the discipline not to add new debt. If your debt is too large to repay in that time, a debt consolidation loan or a non-profit credit counselling program may be more effective.
The Bottom Line
A balance transfer is a tool to pay off debt faster, not a way to postpone it. With a firm payoff plan, it can save you real money.
This article is for general information only and is not financial advice.
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