- Is A Balance Transfer A Good Idea?
- What is a balance transfer?
- Is doing a balance transfer a good idea?
- Pros of a balance transfer
- Cons of a balance transfer
- How to tell if a balance transfer is right for you
- Choosing a balance transfer card: What to look for
- The bottom line
- The Pros And Cons Of Balance Transfer Credit Cards
- 0% Interest
- Debt Consolidation
- Lower Credit Utilization
- Balance Transfer Fee
- Regular APR
- Credit Limits
- Credit Inquiries
- Excellent Credit Required
- Risk of More Debt
- Self – What is a Balance Transfer? Pros, Cons, and is One Right For You?
- Pros and cons of balance transfers
- Pro 1: You can simplify your monthly payments
- Pro 2: You can save money on interest
- Pro 3: You may be able to pay off your debt faster
- Con 1: Most balance transfers come with a fee
- Con 3: You could get deeper in debt
- Con 4: 0% APRs might be hard to find and may not last as long
- 1 – Check your mailbox
- 2 – Search online
- 4 – Compare the pre-qualification offers
- How to complete a balance transfer
- Final thoughts
- Balance Transfer Credit Cards
- Pros and Cons of Balance Transfers
- Understanding Balance Transfer Fees
- How To Make a Balance Transfer
- Things to Consider about Balance Transfer Cards
- 1. Make Sure to Pay on Time
- 2. Try to Keep from Racking up Additional Debt
- 3. Think Twice before Closing Your Credit Card
- Applying for Balance Transfer Credit Cards
- Balance Transfer Card Alternatives
Is A Balance Transfer A Good Idea?
Citi is an advertising partner.
Balance transfers can be a lifesaver if you hope to pay down debt without having to deal with the high interest rates credit cards normally charge. However, credit card balance transfers are far from foolproof, and they can cause just as many problems as they solve.
Before you sign up for a balance transfer credit card and take steps to consolidate debt, it helps to know how balance transfers really work, as well as their main advantages and disadvantages.
Are balance transfers bad? They don’t have to be and they can easily save you hundreds (or thousands) of dollars, but you’ll have the best shot at savings if you go about your balance transfer the right way from the start.
What is a balance transfer?
Balance transfer is a term used to describe the act of transferring balances from one credit card to another. Consumers typically transfer balances in order to take advantage of credit card offers that extend a 0 percent APR for a limited period of time.
The Citi Simplicity® Card is one of the most popular balance transfer cards available right now, and it’s easy to see why. This card gives new cardholders 18 months with an introductory 0 percent APR on purchases and balance transfers, after which they’ll pay a variable APR of 14.74 percent to 24.
74 percent. A 3 percent balance transfer fee (minimum $5) applies, but there are no annual fees, no late fees and no penalty APR.
Without any interest for a year or more, cardholders who initiate balance transfers have the chance to pay down debt faster—and without having to waste money on interest payments.
At this point, you may be wondering what could possibly go wrong with a 0 percent introductory APR. Is it good to transfer credit card balances?
At the end of the day, consumers who opt to consolidate debt with a 0 percent intro APR credit credit card may help themselves or make their situation worse. It all depends on whether they take debt repayment seriously, as well as whether they continue using credit cards to rack up more debt.
Is doing a balance transfer a good idea?
You’re probably wondering, “Should I do a balance transfer?” You may or may not be an ideal candidate for a balance transfer, but you should know about all the potential advantages and pitfalls before you move forward.
Pros of a balance transfer
- Save money on interest: By consolidating high interest credit card debt with a balance transfer card, you can save thousands of dollars in interest depending on your debt. It’s easy to see why you can save so much when you consider that the average credit card interest rate is currently over 16 percent.
- Pay off debt faster: During your card’s introductory offer period, every dollar you pay goes toward your debt. This means you can stop wasting money on interest and pay off your debt at a much faster pace.
- Simplify your financial life: If you have debt on multiple credit cards with high interest rates, a balance transfer credit card can make debt repayment easier. Instead of making multiple debt payments each month, you can move all your debt to your balance transfer card and make one payment every month.
Cons of a balance transfer
- Potential for more debt: Consolidating debt with one new credit card can make it tempting to rack up more debt on other cards. Not only that, but you will only make considerable progress with your debt repayment if you have the discipline to pay as much as you can each month.
- Balance transfer fees: Balance transfer credit cards typically charge upfront fees that equal 3 percent or 5 percent of the debt you’re transferring. These balance transfer fees can add up quickly if you do balance transfers over and over, and they eat away at your interest savings.
- Excellent credit required: The best balance transfer offers aren’t available for consumers with less than stellar credit, so you may not qualify. If you want to transfer balances with bad credit, you may have to choose from inferior offers.
- Balance transfer offers don’t last forever: Also remember that cards in this niche only offer a 0 percent introductory APR for 12 to 18 months in most cases. If you don’t get serious about your debt during that time, you may not end up much better off.
How to tell if a balance transfer is right for you
Is it good to transfer credit card balances? That’s a question only you can answer. Generally speaking, balance transfers work best if you can meet the following criteria:
- You have very good or excellent credit
- You have a plan to pay off your debt or make considerable progress during your card’s introductory offer period
- You plan to use cash or debit for purchases (instead of other credit cards) while you’re paying off debt
In addition to checking off the boxes above, you should also run the numbers to see how much you could save with a balance transfer offer.
For example, imagine you owe $6,100 in credit card debt on two different credit cards that charge a 21 percent APR, and that you’re currently paying $350 per month across both accounts.
At this rate, it would take you 21 months to become debt-free if you didn’t make any other charges, and you would pay $1,240 in interest payments during that time.
Now picture yourself signing up for the Citi® Diamond Preferred® Card, which offers an introductory 0 percent APR on purchases and balance transfers for 18 months, followed by a variable APR of 14.74 percent to 24.74 percent. If you transferred your $6,100 in debt over, you would owe a balance transfer fee of $183, which is 3 percent of your balance.
This means you would start your debt payoff with a balance of $6,283. However, you could pay off your debt completely in 18 months with the same monthly payment of $350. This means your total cost for debt repayment drops from $1,240 in interest to $183 you paid in balance transfer fees.
If you’re curious how the numbers might work for your situation, Bankrate’s credit card balance transfer calculator can help.
Choosing a balance transfer card: What to look for
As you compare the best balance transfer credit cards, there are a few major factors you should look for and compare.
First, check for cards that feature introductory APR offers for as long as possible—especially if you have a lot of debt to pay down.
Second, check to make sure any card you’re considering doesn’t have an annual fee, and look for cards with balance transfer fees at the lower end of the scale (or 3 percent instead of 5 percent).
Also, be sure to check for any cardholder benefits you may want access to, such as purchase protection, travel insurance or no foreign transaction fees. Finally, you should know that some balance transfer credit cards also offer rewards, but that choosing a card with rewards can be a poor choice if your ultimate goal is paying off debt.
The bottom line
Is it good or bad to transfer credit card balances? Either scenario could turn out to be true, and it all depends on how you handle the situation.
If your goal is consolidating debt to pay it off, then a balance transfer can be a valuable tool. But if you only want to consolidate balances so you can rack up more debt on other cards, then you probably won’t get much benefit in the end.
Here’s our advice: approach balance transfers with a certain amount of caution, and only move forward if you have a plan to get debt. Transfer balances the right way, and you could pay down your balances faster, save thousands of dollars or both.
The information about the Citi Simplicity Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
The Pros And Cons Of Balance Transfer Credit Cards
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Balance transfer credit cards hold out promise for those struggling with debt.
For some, a zero percent balance transfer can shave years off of debt repayment and save thousands in interest payments. For others, however, a balance transfer can, a yo-yo diet, ultimately result in even more debt.
Therefore, before applying for a zero percent balance transfer credit card, consider the following pros and cons in order to determine if a balance transfer is the right move for you.
The first and primary benefit of a zero percent balance transfer credit card is the 0% APR offer. In some cases lasting 21 months, the 0% introductory APR enables consumers to carry debt without paying interest. The result is that all of your monthly payment goes to pay down the balance on the credit card.
Let’s look at an example. We’ll assume a consumer has $2,000 in credit card debt at an interest rate of 13%. While the minimum payment will vary from one card to the next, a typical minimum payment will equal about 2% of the outstanding balance. In our example, the minimum payment the first month would be about $40. Of this amount, more than $21 would go toward interest payments.
Continue paying just the minimum payment each month, and interest payments grow exponentially. According to this Bankrate calculator, it would take 179 months and interest payments of $1,813.37 to retire this debt.
Transfer that balance to a card with a zero percent introductory APR and the picture changes dramatically. With a 21 month 0% balance transfer card, for example, you could pay off this debt entirely without interest by making monthly payments of less than $100.
A second benefit of a balance transfer card is consolidating your existing debt. If a consumer carries balances on several cards, merging the balances onto a single balance transfer credit card will remove the inconvenience of making multiple monthly payments.
Lower Credit Utilization
A third potential benefit is a long-term improvement of a consumer’s credit score. While a balance transfer can negatively affect your credit score in the short term, as we’ll see below, over time a balance transfer may increase your score, according to Experian.
This is because a balance transfer will ly decrease your utilization rate. The utilization rate compares your outstanding balances on revolving credit credit cards to your available credit. Credit scores view a lower utilization rate as a sign of responsible credit use. A lower utilization rate also shows that a consumer has credit to use in case of an emergency.
With a balance transfer, your total credit increases by the amount of credit on the new balance transfer card. Assuming you don’t incur any more debt, your utilization rate will go down. While this is not a justification by itself to transfer a balance, It is a potential long-term benefit. You can read the Forbes list of the best balance transfer credit cards here.
Balance Transfer Fee
First, most cards charge a balance transfer fee. The fee is expressed as a percentage of the amount transferred. Three percent is the most common, but fees range from as little as 0% to as much as 5% or more. Cards with a zero percent balance transfer promotion include Amex EveryDay® Credit Card* and the Chase Slate* card.
A second risk is the regular APR of the new card. If the debt is not paid in full before the 0% introductory APR expires, the remaining debt will be subject to the card’s regular APR. For many cards, the actually APR will vary depending on the applicant’s creditworthiness.
Therefore, make sure to reduce the majority of debt while using the introductory APR rate. If you can’t pay your debt off in that time period, compare the new APR with the APR on the card you’re transferring your debt from.
If the new rate is higher, it could cancel out any progress you have made on reducing your debt during the 0% introductory period.
A third issue relates to credit limits. While a consumer may have $10,000 in high interest debt, for example, it doesn’t mean the new balance transfer credit card will offer that much available credit.
The amount of credit extended is a number of factors and varies from one issuer to the next.
So be prepared to either transfer only a portion of your debt to the new card, or to apply for multiple balance transfer cards.
Applying for multiple cards brings us to a fourth potential pitfall. While we noted above that a balance transfer card can improve your credit score in the long term, it can hurt it in the short term.
That’s because credit scoring formulas consider a consumer’s recent application for new credit. While a single new credit card application ly won’t lower a score significantly, applying for multiple new credit lines can.
More importantly, if you will be shopping for a mortgage in the near future, even a drop of a few points can result in a higher mortgage rate.
Excellent Credit Required
Fifth, only “applicants with excellent credit will qualify for introductory credit card offers zero percent balance transfer,” according to Discover Bank*. This isn’t so much a disadvantage of balance transfer cards as it is a warning. The best 0% balance transfer offers go to those with credit scores near or above 700.
Risk of More Debt
Finally, a consumer runs the risk of adding more credit card debt once their interest burden goes down. They may end up with more debt than when they started. After you transfer your balance to a new credit card, you suddenly have more credit available. This can be a temptation for some to continue to spend and to add more debt. Here Socrates’ wisdom comes to mind, “know thyself.”
Ultimately, a zero percent balance transfer makes sense if the majority of your debt can be paid off before the promotional period of the card ends, the new APR after the promotional period does not offset progress, and any balance transfer fees can be avoided or comfortably covered.
Self – What is a Balance Transfer? Pros, Cons, and is One Right For You?
By Janet Berry-Johnson, CPA
If you have credit card debt, a balance transfer can be a useful tool for lowering your interest rate and paying down your debt faster. However, there are several things you should know about balance transfers before accepting an offer.
Let’s dive in…
Pros and cons of balance transfers
Before taking advantage of a balance transfer offer, make sure you understand the pros and cons.
Pro 1: You can simplify your monthly payments
Suppose you consolidate multiple credit card balances into one balance transfer credit card. In that case, you can focus on one monthly payment with one monthly due date to one card issuer instead of making several payments throughout the month.
This makes it easier to manage your payments and avoid missing a payment and getting hit with late fees.
Pro 2: You can save money on interest
One of the biggest incentives for doing a balance transfer is the potential to save money on interest. If you can transfer your balance to a lower interest rate card, you can save on interest.
Pro 3: You may be able to pay off your debt faster
Many balance transfer cards offer 0% introductory rate on interest for a limited time – anywhere from 6 to 24 months. During that promotional period, any money you pay toward your debt will go towards paying down your principal rather than getting eaten up by interest, which can help you get debt faster.
Just pay attention to when the intro APR period ends so you can plan ahead.
Con 1: Most balance transfers come with a fee
Most cards charge a balance transfer fee. According to Experian, those fees usually equal 3% or more of the amount you're transferring.
On a $6,000 balance transfer, a 3% balance transfer fee will cost you $180. That fee is added to your new balance transfer card's balance, and it could offset any benefits you might get from lowering your APR.
The low or 0% interest rate won't last forever, so make sure you know when it ends and what the APR will be after that.
Con 3: You could get deeper in debt
If you have trouble managing credit cards and are deeply in debt, a balance transfer could make a bad situation worse.
Transferring a balance from one credit card to another doesn't close the old credit card account. If you continue to use the newly paid-off card to make new purchases, you could wind up with even more debt than you started with.
Con 4: 0% APRs might be hard to find and may not last as long
In many cases, you need a good or excellent credit score (650 or above) to qualify for a balance transfer card. But even with a good credit history, a 0% APR balance transfer offer may be hard to come by.
According to a recent article from CNBC:
“Due to the recent economic downturn, many financial institutions are shortening the length of their 0% APR offers or getting rid of them altogether.
Some card issuers, such as Citi and American Express, have cut back on the balance transfer offers provided with their cards to reflect the changing economy and minimize risk.”
1 – Check your mailbox
If you receive a balance transfer offer in the mail, that's a good place to start your search.
However, receiving an offer in the mail doesn't guarantee the credit card company will approve your application. Once you apply, the lender will take a closer look at your credit, payment history, utilization rate, income and other factors before deciding whether to approve or deny your application.
2 – Search online
Most major credit card issuers allow you to check for pre-qualified offers online. You may need to provide some personal information, such as your name, address and the last four digits of your Social Security number.
Some places to start include:
- American Express
- Bank of America
Many banks and credit unions provide credit cards. If you already have a checking or savings account with a bank that provides credit cards, ask if they have any balance transfer offers available.
4 – Compare the pre-qualification offers
Once you have an idea of the pre-qualification offers available to you, take note of:
- The balance transfer fees
- Whether the offer includes low or no interest for an introductory period
- How long that promotional rate lasts
- The APR after the introductory period ends
Also, check to see whether the card has a credit limit.
If you want to transfer $6,000 in credit card debt to a new card, applying for a card with a $5,000 limit won't work.
Keep in mind, many credit card issuers won't allow you to transfer balances between cards you already have with them. For example, if you have a Citi Rewards+ Card, you ly won't be able to transfer the balance on that card to a Citi Simplicity® Card.
How to complete a balance transfer
Once you've selected the right balance transfer card, apply online, via mail, or in-person at your bank or credit union. From there, it may take a few days or weeks to find out whether you've been approved.
Once your application is approved, you typically need to contact the new credit card company to initiate the balance transfer. You can start the process online or via phone.
The credit card company will ask for the account numbers from your existing cards and how much you want to transfer.
Note: It may take a few weeks to complete your balance transfer request, so keep making payments on your existing debt until you receive confirmation that the transfer is complete.
Also, act quickly. Many balance transfer cards provide a limited window of time to take advantage of the promotional rate. If you wait too long, you might miss your chance for low or no interest on the transferred balance.
Balance transfers can be useful for lowering your APR and getting debt faster, but they can be costly if you're not careful. Make sure you understand the fees and APRs involved, choose a card with good terms, and commit to paying off your debt as quickly as possible.
Janet Berry-Johnson is a Certified Public Accountant and freelance writer with a background in accounting and insurance.
Balance Transfer Credit Cards
Balance transfer credit cards typically promise a low or 0% APR (annual percentage rate) for a limited period of time in exchange for transferring a balance from an existing credit card to a new one. If you have existing credit card debt, you might be hearing from credit card issuers with offers for a balance transfer.
Of course, as with any offer of credit, you'll need to meet the card issuer's qualification criteria. It's also common for balance transfer credit cards to charge an upfront fee for the service that can equal about 3% or more of the total amount you're transferring.
|You currently have a balance on a credit card with a higher interest rate||You have a very high balance (you'll have to pay a transfer fee on that entire amount)|
|You are able to pay off your balance before any promotional rate ends (and rates increase)||You don't carry a balance and you want to earn rewards|
|You aren't able to pay off the balance before an intro/promo rate ends (you'll usually pay a lot more in interest after that)|
Pros and Cons of Balance Transfers
Whenever you make a decision about how to use a credit tool, it's important to understand how that tool works, and how using it could affect your overall credit standing. Balance transfers offer both benefits and potential pitfalls, and you'll need to carefully weigh whether the pros are worth risking the cons.
The pros of balance transfers include:
- Transferring an existing credit card balance to a card with a lower APR can reduce the amount of interest you pay.
- Paying less interest could make it easier to pay off your debts in full more quickly.
- If you consolidate more than one balance onto a balance transfer card, having one monthly payment can be simpler than paying multiple credit cards- a benefit especially if you've struggled to remember to make on-time payments in the past.
The cons of balance transfers include:
- A high transfer fee could outweigh the benefits you might get from a lowered APR.
- If you fail to pay off the entire transfer amount by the end of the promotional period, your APR will reset to a higher rate—one that could potentially be higher than you were paying before making the transfer.
- If you continue to use the paid-off card, you could accrue even more debt.
Understanding Balance Transfer Fees
Balance transfer fees vary depending on the credit card and agreement terms. Check to see what fees will be before applying or transferring any money to that new credit card. Usually you'll pay a 3-5% fee on the total amount you transfer and there is sometimes a minimum fee.
How To Make a Balance Transfer
Keep in mind that you can only transfer up to the credit limit on the new balance transfer credit card you get. Some additional things to note when completing a balance transfer:
- When you do respond to a balance transfer credit card offer, you'll fill out additional information—including what amount you want to transfer—and will need to provide account information for the existing card(s) in order to transfer the balance to your new credit card.
- Once the credit card issuer for your new credit card approves the balance transfer, that company contacts your creditor where the balance currently resides and pays them the amount you indicated on your application. It usually happens quickly, but can take 1-2 weeks for the payment to process.
- Continue to make any credit card payments if you have a payment due before your balance transfer is scheduled to go through so you avoid any late payment fees.
Things to Consider about Balance Transfer Cards
In order to make a credit card balance transfer work in your favor, it's important to understand a few things about how they work.
1. Make Sure to Pay on Time
Most balance transfer credit cards will terminate the reduced APR if you pay late or miss a payment. Be sure to read the credit card agreement so you understand exactly how your new credit card works and what you have to do to preserve your promotional interest rate.
2. Try to Keep from Racking up Additional Debt
Most people open balance transfer credit cards in order to reduce their debt with a lower, more manageable interest rate. However, when you transfer a credit card balance, it's important to avoid adding more debt—either on the old card you've paid off or on the new card with a lower APR.
In some cases, the low APR may only apply to the transferred amount; new purchases can be charged at a higher, non-introductory interest rate. And, if balances are carried over, your payments could be applied only to the new charges, resulting in an increased chance of the transferred amounts remaining at the end of the promotional period, when your rates could jump higher.
3. Think Twice before Closing Your Credit Card
You may be tempted to close the paid-off credit card in order to eliminate the temptation to use it. However, closing a credit card account often negatively affects your credit scores—because it impacts your length of credit history and credit utilization ratio.
This ratio compares the total amount of credit you have available with the total amount you're using, and it's a factor in calculating credit scores. If you can resist the temptation to make purchases on the paid-off card, it's probably better for your credit utilization ratio to keep the card open.
Also, a balance transfer can influence credit scoring in another way. Every time you apply for credit—including a balance transfer application—it's noted on your credit report as a hard inquiry. Too many hard inquiries in a short period of time can negatively impact credit scores.
Applying for Balance Transfer Credit Cards
Depending on your credit scores and the information on your credit report, you may or may not qualify for the optimum balance transfer offer available. Before you apply for a balance transfer credit card, check your credit report and know your credit scores to see the type of information a credit card company will see when you apply for a new credit card.
Balance Transfer Card Alternatives
A balance transfer credit card can be an effective way to reduce debt and simplify payments, but it's not the only option available to you. Rather than open a new credit account, you could consider:
- Debt consolidation: This involves bundling multiple unsecured debts credit cards into a single, lower-interest loan. Having one payment per month can make it easier to keep up with payments and reduce the total amount of interest you pay.
- Credit counseling: A reputable, not-for-profit credit counselor can help you create a plan for paying off debt, and help you learn good credit habits to avoid accumulating new debt.
- Debt management plan: When you consult with a credit counselor, he or she may advise you to go on a debt management plan. The goal of the plan is to pay off unsecured debt; mortgages, auto loans and student debt won't be included. Also, you'll have to close all your credit cards and agree not to apply for any new credit while on the plan.