Best Balance Transfer Credit Cards
- What is a Balance Transfer?
- Pros of a Balance Transfer Credit Card
- Cons of a Balance Transfer Credit Card
- What to Know About Balance Transfer APRs?
- Who Should Get a Balance Transfer Credit Card?
- Best Ways to Use a Balance Transfer Credit Card
- Bottom Line
High credit card debt can decrease your credit score, trigger financial stress and hang over your head for years. So, you might look for an opportunity to dig yourself out of a hole, including applying for a balance transfer credit card.
These credit cards don’t get rid of credit card debt per se. But if used responsibly, these cards can help you pay down balances and become debt-free. Balance transfer credit cards are attractive because many include an introductory rate of 0% APR for the first year. The benefits are undeniable, but there are a few things to consider before applying for a card.
What is a Balance Transfer?
A balance transfer moves the balance from one credit card to a credit card with better rates and terms. For this to happen, you must apply for a credit card with a balance transfer option. Once approved for the card, transfer any amount up to your new credit card’s limit.
Let’s say you have two credit cards: one with a $1,000 balance and the other with a $2,000 balance. If you’re approved for a balance transfer credit card and receive a credit limit of $5,000, there’s room to transfer balances from both credit cards to this card.
The process is relatively quick and simple. When applying for a balance transfer credit card, indicate on the application which of your balances you would like to transfer. Include the names of these creditors, your account numbers, and your balances. Some credit card companies issuing a balance transfer credit card will contact creditors on your behalf and transfer balances for you. Other companies let you make the transfer once you receive the card.
A balance transfer is useful, but it can also be dangerous if not handled responsibly. It’s important to understand the advantages of balance transfer credit cards, as well as some of the disadvantages.
Pros of a Balance Transfer Credit Card
- Get a lower interest rate. If you’re struggling to pay down credit card balances, getting a credit card with a lower interest rate makes it easier to pay down debt. This is because a lower interest rate results in a lower minimum payment. As a rule of thumb, even if your minimum payment drops due to a lower rate, continue to make your original minimum payment. By doubling or tripling the minimum payment, you’ll pay down the principal balance sooner. Balance transfer rates vary, so shop around and compare rates before applying for a card.
- Consolidate debt. Juggling multiple credit card payments can be confusing. You might forget due dates, resulting in late fees and negative information on your credit report. Use a balance transfer to simplify your finances and consolidate all your credit card balances onto a single card. This way, you only have to worry about one monthly payment and one due date. To further streamline your finances, set the new credit card on autopay. Choose a day of the month to have payments drafted from your account and never worry about late fees.
- Receive favorable terms. Transferring your balance to another credit card can also result in better credit card terms. Maybe your current credit card doesn’t have a grace period or doesn’t include cardmember perks like a rewards program. Look for cards that offer discounts to help you save. These include cards with no annual fees or foreign transaction fees when traveling abroad.
Cons of a Balance Transfer Credit Card
- No guarantee of a lower rate. Most people apply for a balance transfer credit card because they’re looking for a lower interest rate. But there’s no guarantee that you’ll qualify for a better rate. Your rate is based on your credit history. So check your credit before applying, and only fill out an application if your score is high enough to qualify for a favorable rate. You need a score of 680 or higher in most cases, but you can contact the credit card issuer directly to inquire about minimum credit score requirements. To improve your chances of getting approved, pay all your bills on time.
- Expensive fees. There is a fee to transfer your balance to another card. Credit card companies charge this fee directly to cards, and it can be between 3% and 5% of the transferred balance. Shop around before choosing a balance transfer credit card. Some cards don’t charge this fee when transfers occur within a few weeks of opening an account.
- Possible credit damage. While paying off debt increases your credit score, balance transfers can hurt your credit score, if done incorrectly. When transferring balances between cards, make sure the amount you transfer doesn’t max out your new credit card. So if you’re approved for a new credit card with a $5,000 credit line, you wouldn’t want to transfer $5,000 worth of credit card debt onto the card. Credit card balances should never exceed 30% of the credit line. A higher percentage raises your credit utilization ratio (the amount owed in relation to available credit), which could drive down your credit score. Also, applying for a balance transfer credit card adds a new inquiry to your credit report. Each inquiry stays on your report for two years and can decrease your score by a couple points. Therefore, only apply for credit when necessary, and don’t apply for too many balance transfer offers at once. If you were to apply for 10 balance transfer credit cards in a short span of time, you could potentially reduce your credit score by 20 points. This can be the difference between a favorable interest rate and a not-so-favorable interest rate.
- Risk of doubling your debt. Transferring credit card debt from one card to a new card doesn’t automatically close your old accounts. If you keep old credit card accounts open, and if you don’t change your spending habits, you could potentially charge up a paid of the account and re-accumulate debt. To avoid this, destroy old credit cards after transferring a balance. Cut the card in half or put it through a card shredder. Since the length of your credit history makes up a percentage of your credit score, only close a paid off credit card account if it’s a newer card. Never close your oldest account.
What to Know About Balance Transfer APRs?
As mentioned, one of the most attractive features of a balance transfer is that many cards offer a 0% introductory rate for the first six to 18 months—which means you don’t pay interest on the transferred balance. This promotional rate is certainly helpful when you’re trying to pay off credit card debt, but it’s important to understand how introductory rates work.
Because these rates eventually expire, you shouldn’t apply for any random balance transfer card. Instead, also look for cards that offer lower or reasonable regular APRs, since this is what you’ll pay after the introductory period. If you don’t shop around and compare rates, you could end up with a regular APR that’s higher than your previous credit card’s APR.
Be aware that some 0% introductory rates “only” apply to a transferred balance, and not purchases. So if you use this credit card for shopping, the credit card issuer may immediately charge interest. This is rare, however, and many balance transfer cards extend zero interest to purchases.
In addition, 0% interest is only available for as long as your account remains in good standing. With that said, pay your bill on time every month. A late payment could prompt the credit card company to revoke your 0% rate.
Who Should Get a Balance Transfer Credit Card?
Now that you know what to expect from a balance transfer credit card, a question remains,” Is this the right credit card for you?
- Are you struggling to pay off credit card debt?
If you don’t carry a lot of credit card debt, or if you already have a low-rate card, applying for a balance transfer credit card might not make sense. Sure, you won’t pay interest on your balance for the next six to 18 months, but you will pay a balance transfer fee, and there’s no guarantee that you’ll receive a low APR once the promotional rate on your new card expires. So it might be safer to stick with what you have. On the contrary, if you have massive credit card debt coupled with high-interest rates and your minimum payments don’t put a dent in your principal balance, paying 0% interest could significantly reduce what you owe.
- How’s your credit?
Only apply for a balance transfer credit card if you have good or excellent credit (680+). Some credit card issuers will not approve your application with a lower score. If you are approved with a lower score, don’t expect the best interest rate after the promotional rate expires. To improve your credit score, pay your bills on time, limit your number of credit inquiries and check your credit report at least once a year for errors.
- Can you pay off the card during the promotional rate period?
Balance transfer credit cards are perfect for people who can pay off their balances before the 0% interest period expires. Before applying, come up with a debt elimination plan to see if this is realistic for you. Let’s say you owe $4,000 and you’ll enjoy 18 months of 0% interest. In this case, you would need to pay a minimum $222 a month to erase this debt before interest kicks in. Think of ways to drum up the extra cash. For example, get a part-time job, sell items online, cut back on shopping and entertainment, get a roommate, get rid of cable or use bonus money.
- Do you have self-control?
Consider whether you have enough self-control to not re-accumulate debt after transferring a balance. If you have bad spending patterns, don’t expect this problem to disappear overnight. The reality is, adding a new credit card to your mix could be a recipe for disaster.
If you’re adamant about a balance transfer and you don’t want to repeat past mistakes, it might be in your best interest to cancel a credit card once you’ve transferred its balance. Your credit score might take a hit if it’s an older account, but the damage is repairable. Practice good credit habits to recoup lost points.
Learn More about Low Rates &Fees Credit Cards
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Ways to Use a Balance Transfer Credit Card
Balance transfer credit cards can dig you out of a hole, but only if you know the best ways to use these card.
- Break the minimum payment rut. Make sure you’re paying more than your minimum payment every month. Reduce spending and then double, triple or quadruple your payments to eliminate the debt sooner.
- Shop around for cards with no annual fees. Balance transfer fees are expensive, about 3%. Transferring $5,000 could result in a $150 fee, so shop around and apply for cards with no annual fees to minimize your out-of-pocket expense.
- Don’t use the card for new purchases. Remember, the goal is debt elimination. Therefore, don’t use a balance transfer credit card for new purchases. If you have a balance transfer credit card with a $5,000 credit limit and you only transfer $2,000 to the card, you have $3,000 of available credit remaining. As tempting as it might be, don’t go on a shopping spree and max out the account. Out of sight, out of mind could work, so don’t keep the credit card in your wallet. Instead, lock it in a drawer or a file cabinet. If you must use the card for an emergency, only do so if you can pay off a purchase by the next billing cycle.
Balance transfer credit cards can erase debt faster and get your finances back on track, but only when used responsibly. To benefit fully from these cards, look for a low-interest rate, minimum fees and make sure you have enough self-control to avoid re-accumulating debt. Shop around, compare offers and they consider whether this is the right card for you.