Is a Balance Transfer Right for You? See the pros and cons!
Transferring the balance from a high-interest credit card to one with a lower rate can be a smart way to save money.
Discover the pros and cons of a balance transfer and learn how to save money!
You might have already thought of making a balance transfer, but before jumping in, it’s really important to know how it works so you don’t run into any surprises later.
Let’s break down the pros and cons of balance transfers:
What is a Balance Transfer?
In simple terms, a balance transfer is when you move your debt from one credit card to another that has a lower interest rate.
It can be a helpful way to manage your debt and pay it off faster. Just keep in mind that most balance transfers come with a fee.
Why Consider a Balance Transfer?
We all know paying off credit card debt with high interest is tough. Now imagine hitting pause on those interest charges for a while, so you can focus on paying down the actual debt.
That’s what a balance transfer card can help you do. Here’s a closer look at the ups and downs.
Benefits of a Balance Transfer
It can help your credit score
A balance transfer could give your credit score a boost by lowering your credit utilization ratio (the amount of your available credit you’re using).
When you transfer the balance and start paying it down, this ratio drops, which can help improve your credit score.
You will have less interest to worry about
One of the biggest perks is the chance to pay little to no interest for a while. Some cards offer 0% interest for an introductory period.
This allows any payments you make to go directly toward reducing the debt instead of being eaten up by interest charges.
It simplifies your payments
A balance transfer lets you combine all your credit card debt into one card.
That means just one payment a month, making it easier to stay on top of things without worrying about multiple due dates.
Better terms for a new card
If your current cards are piling on high interest rates or not giving you much in return, moving your balance to a new card with better terms might help.
Some even come with rewards programs. Just be sure to avoid using your old cards for new purchases until you’ve paid off the transferred debt.
Downsides of a Balance Transfer
You need a good credit score
To qualify for the best balance transfer deals, you’ll generally need a strong credit score.
If your score isn’t there yet, consider other options, like a debt consolidation loan, which could offer a lower interest rate than your current cards.
Temptation to take on more debt
Moving your balance to a new card and freeing up your old ones can be tempting, but it’s important not to start charging again until you’ve cleared your debt.
Stick to a payment plan to avoid ending up in more debt than you started with.
Low interest is temporary
The low or 0% interest rate doesn’t last forever. Most cards offer this for a limited time, like 12 to 21 months. After that, the rate can jump up, and if you haven’t paid off the balance by then, you might end up paying more in interest.
Transfer fees
There’s usually a fee to move your balance—typically 3% to 5% of the amount you’re transferring.
You’ll need to weigh whether this fee is worth the interest savings over time.
Don’t Forget About Fees
If you jump on a balance transfer right away, you might snag a lower fee—typically around 3%. But if you wait, that fee could go up to about 5%.
Keep in mind that some cards may also charge annual fees, late fees, or foreign transaction fees.
While these costs might be worth it for certain benefits, if a balance transfer is what’s driving you to apply, be sure to read the fine print and know what you’ll be paying.
Like these tips? Check out our full article on how to avoid credit card fees.
