When my ex-husband and I got divorced, I found myself completely starting over financially. I didn’t have anything in savings, and I had to rely on credit cards to get my fresh start.
When I signed up for my credit card, I got a promotional offer of one year with 0% interest. I was so sure I’d be able to pay it off in time.
Fast forward twelve months, and I was still carrying a balance. And when I saw what my monthly interest charge was, I was horrified. I knew right away I had to figure out an alternative solution.
That’s where balance transfers come in. After doing some research, I decided that applying for a balance transfer card would be the best way to aggressively pay down my debt without losing money to interest.
One of the most common questions I get from readers is whether a balance transfer is a good option to help pay off debt faster.
Considering most American households are carrying some sort of credit card debt, it’s not really a surprise that I get this question often.
In this article, I’m sharing what a balance transfer is, how it can impact your finances, and how to decide if it’s the right choice for you.
There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.
How does a balance transfer work?
A balance transfer is when you transfer the balance of an existing credit card to a new credit card. In other words, you’re using a credit card to pay off your credit card debt.
The reason these transactions are so popular is that many credit card companies offer a 0% promotional period on new balance transfers.
Let’s say you’ve got $5,000 in credit card debt with an interest rate upwards of 20%. By using a balance transfer, you can move that $5,000 to a new credit card and pay 0% interest for the first 12-18 months.
This move can save you money in interest, and help you to pay off your credit card debt faster than you otherwise would have.
Is it a good idea to do a balance transfer?
Balance transfers can be an amazing tool for anyone working to pay down credit card debt. Here are a few perks:
- Save money on interest. 0% credit card interest can save you SO much money. Let’s say you have $2,500 of credit card debt with 24% interest (not at all uncommon these days). If you pay your card off in 12 months, you’ll pay over $300 in interest. If you do a balance transfer and pay 0% interest, you’ll save yourself hundreds of dollars.
- Pay off your debt faster. One of the reasons credit card debt is so hard to pay off is that a huge chunk of your monthly payments go toward interest. You’re often barely making a dent in your balance. By getting rid of interest for a while, all of your money goes toward the principal and you’ll pay off your debt WAY faster.
Is there a downside to balance transfers?
Balance transfers can be a great way to buy yourself some time while you pay off your credit card debt. But there are some downsides to consider as well.
- Expect to pay some fees with your balance transfer. It’ll vary depending on the card you choose, but the fees are typically 3-5% of the total balance you’re transferring. Usually, this small fee is worth it, but it’s best to run the numbers for your specific situation.
- Balance transfer offers aren’t available to everyone. Cards with 0% balance transfers are primarily available to those with good or excellent credit. The best offers will be reserved for those with excellent credit.
- If you haven’t addressed the issues that caused you to go into credit card debt in the first place, I wouldn’t recommend a balance transfer. You may find yourself going into even more debt as a result of the extra credit available to you.
Do balance transfers affect your credit score?
Balance transfers can definitely impact your credit score, but it’s difficult to say what the effect will be for any one person.
First, applying for a credit card places a hard inquiry on your credit report. This can result in a slight drop in your score.
Next, opening a new credit card will shorten your average length of credit. The longer your credit history the better. So lowering your average may cause your score to drop.
Finally, opening a new credit card will increase the total amount of credit available to you. As long as you don’t rack up more credit card debt, your credit utilization (aka the percentage of your total credit you’re using) will go down. As a result, your credit score can increase.
Keep in mind that if you struggle with impulse spending, especially when it comes to credit cards, then opening a new card can seriously hurt your credit in the long run. Only open a card if you feel confident you won’t take on more debt.
How to do a balance transfer
Ready to start the balance transfer process and pay off your credit card debt faster? Here are the steps to follow:
- Check your credit. 0% balance transfer cards are reserved for people with good or excellent credit. You may not want to apply and have a hard inquiry in your credit report if you won’t qualify.
- Choose the right card for you. There are plenty of balance transfer cards on the market, and each one comes with its own perks. Do some research and decide which card best fits your needs.
- Decide how much to transfer. Once you’re approved for your balance transfer, it’s time to decide how much to transfer. It’ll depend heavily on how much credit you’re approved for. You can’t transfer more credit than your new credit card company is willing to extend to you.
- Make a debt payoff plan. When it comes to balance transfer deals, it’s ALL about the follow-through. Transferring your balance to a new card is only worth it if you’re going to use this opportunity to pay down your debt. You can use a tool such as Undebt.It to help you plan your debt payoff.
As you’re working your way through the balance transfer process, remember one very important thing: the balance transfer is not immediate. It can take anywhere from a few days to a few weeks for your transfer to go through.
While you wait for the deal to close, you still have to make your normal monthly payments to your old credit card company. Failing to do so can have a huge negative effect on your credit score!
The best balance transfer credit cards
A quick Google search will help you find plenty of credit cards specifically tailored at balance transfers to help you pay off credit card debt faster. I’ve got some personal experience with balance transfer cards, so I’m sharing a few of my favorite balance transfer cards on the market:
- Chase Freedom Unlimited: This is hands-down my favorite all-purpose credit card. It comes with higher cash back than you’ll find on many other cards, along with extra rewards on bonus categories. Plus, it offers 0% for 15 months on balance transfers.
- Capital One Quicksilver: This was my very first credit card, and it’s one I still have in my wallet. In addition to the cash back rewards it offers, you’ll get 0% for 15 months on all balance transfers.
- Discover It Cash Back: This card is another one I’ve had for years, and it offers elevated cash back on certain bonus categories. Plus, you’ll get 0% for 14 months on all balance transfers.
Credit card debt is a huge struggle for so many Americans today. Often we open a credit card with the best of intentions, but impulse spending or a financial emergency causes us to go into credit card debt.
The good news is that a balance transfer can be an amazing tool to help you pay off your debt faster without wasting a ton of money on interest.