How do credit card balance transfers work?

What’s the deal with balance transfer credit cards? Are they too good to be true? Are they sneaky credit traps, or are they practical smart tools for paying off credit card debt?

What is a balance transfer?

A balance transfer involves moving the outstanding balance from one credit card to another. Most people use them to move a balance from a credit card with a high interest rate to a new credit card with a lower interest rate.

You’ll still have to pay back the balance, but you’ll pay less in interest charges, which can lower your monthly payments. A balance transfer also clears your card for more available credit and can improve your credit score with lower credit utilization.

How do balance transfer credit cards work?

Balance transfer credit cards often offer competitive interest rates, typically with a low introductory APR for a limited promotional period.

The intro deals offered by credit card companies often include low or no annual fees and high credit limits, as well as.

Deals and offers typically depend on your credit score, with APR offers dependent on your credit history. As always, excellent credit can make all the difference and can get you a better balance transfer deal.

A balance transfer fee is the one-time charge made by your new lender for transferring your balance. Fees can vary, and they typically range between 2% and 3% of the transfer amount.

With low interest or no interest charged during a promotional or introductory period, it’s best to pay off as much of the balance as fast you can, to lower your repayments as much possible.

That’s the best way to use a balance transfer credit card: pay off your new balance over a short period, while the interest rate is low or zero. With that approach, you’ll pay off high-interest debt under a new low annual percentage rate.

What’s the catch with balance transfers?

They sound great, right? It’s like instantly lowering the interest charges on your card debt without a big hassle or big fees.

That’s true enough. But those introductory rates aren’t forever. They only last a limited time, which you’ll need to monitor and keep on top of.

You’ll do best if you pay more than the minimum payments too. Pay off as much as you can as fast you can. Otherwise, after the introductory period expires, you’ll face higher interest charges, with higher minimum dues. All the benefit is gone.

Balance transfer cards are also part of your credit history. So you’ll have to make regular on-time payments, just like with any card, and any late or missed payments will result in late fees and a ding on your credit score.

Compare and contrast perks and benefits too. Most balance transfer credit cards stand out for low APRs, but they often don’t offer the points, rewards or extra perks you’ll find on standard credit cards.

What are some of the concerns with balance transfers?

The most common concern with balance transfer cards? It’s running out the clock on the low or no-interest promo period. In other words, paying too little with the interest rates are low.

That’s why it’s important to do some math up front: calculate how much you need to pay each month to get your transferred balance to zero before your promotional rate expires.

Almost always that means paying more than the minimum payment due. And you probably can’t rely on your credit card issuer to remind you or to do the math for you. (They’ll make more money if they can string you along until they can raise your interest rate.)

One more thing to keep in mind: opening a balance transfer brings the same repayment responsibility as any other credit card, with its own due dates and payment schedule. And like most new credit card applications, you’ll likely to go through a credit check, which can ding your credit report and lower your credit score.

Can I still use my credit card after a balance transfer?

Credit cards are always tempting. When you open a balance transfer card and transfer the balance from an old one, you’ve suddenly got more credit available. It’s tempting to start using it, especially with that intro APR.

But use your new and old credit with caution. You can use your old credit card account as you like, and while your new balance transfer card might let you use it for new purchases, remember you’re trying to pay off debt. Adding more debt through new purchases is counter-productive. You probably won’t pay off your balance as fast as you could.

How long do balance transfers take?

Balance transfers can vary widely, from 5 business days to three weeks. It all depends on your new lender, your old lender and the new account you’re transferring to. Take time to ask questions. Don’t get surprised by a long transfer period.

Should I get a balance transfer card or debt consolidation loan?

Anyone looking for relief from high interest debt is likely to compare a balance transfer credit card against a personal loan for debt consolidation.

Securing a personal loan could help you improve your credit score, especially with fixed payments, an easier way to stick to a positive payment history. You’ll probably have more time to pay off the balance, too with a low interest rate secured over the loan’s term.

But consolidation loans typically come with origination fees (ranging from 1% to 8%). Some lenders waive them with excellent credit. But there’s no guarantee you’ll get a great rate.

Ready for more? 

Here’s a few resources that can help investigate balance transfer cards. 

• Pros and cons of balance transfer cards (Forbes)

• 5 things to watch out for with intro balance transfer offers (Credit Karma) 

• Best balance transfer cards of 2022 (Nerdwallet)

Learn the pros and cons, compare rates and make sure a balance transfer really works for you.

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Bright Balance Transfers offer low APRs for life.

Bright Balance Transfers are built to work for everybody. There’s no credit check required, so there’s no risk to your credit score. And there’s no introductory or promotional period. Your low interest rate sticks with you as long as you want.

Your credit limit grows as you go too. With responsible, good behavior, your credit limit will expand automatically.

Bright automates your repayments too, so you’ll never pay a late fee and your credit score improves with a new positive payment history.

You’ll also get an easy credit boost and a personal financial plan that makes payments on all your cards for you. It’s a smart way to pay off credit card debt, based on your income, spending habits and goals, even adapting automatically whenever your finance shifts.

If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect in 2 minutes and let Bright get to work.

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Recommended Readings:

Best ways to consolidate credit card debts

Why loans don’t always work for debt consolidation