Balance transfers: Budget hacks or risky business?

It might seem like you’ve found a way around the system: using one credit card to pay off another. But transferring a credit card balance can also incur its own risks.

What is a balance transfer?

Simply put, a credit card balance transfer is when you move the debt you’ve incurred on one credit card to another. You can do this to consolidate your debts, or to take advantage of lower APRs or other benefits.

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn More

Perhaps you applied for a store credit card because you wanted to earn points on seasonal purchases, and now the shopping spree is over and that card’s interest rate doesn’t look so tempting anymore. Or you can’t juggle too many separate credit cards and so many bills—something might fall behind. These are situations in which you might consider a balance transfer.

Doing a balance transfer is simple: You’re still on the hook for the debt, but now that debt is easier to manage because it’s not spread around and has a new, lower APR. But don’t go into it blind; tracking your budget is vital to using a balance transfer to save money and eliminate your debt.

How balance transfers can impact your wallet

To attract customers, credit card companies will often offer an introductory 0% APR on new purchases and balances transferred for a set number of billing cycles (sometimes a few months, other times up to a year or over). Opting for a new card with this offer can be a strong strategy to avoid interest fees during this time—and the savings can truly make a difference.

However, many credit cards feature balance transfer fees that range from 3% to 5%. That fee is not only annoying, but it can add up, especially if you’re transferring over $1,000 in your balance. An ideal credit card for balance transfers will have a 0% APR introductory rate, no annual fee, and no balance transfer fee. Cards without balance transfer fees are rare, but even a 3% to 5% fee still saves money in the long run when compared to interest rates.

There’s also the issue of your credit score. To apply for a new card that offers this kind of balance transfer benefit, you must typically have good or excellent credit, i.e., a FICO score of 690 or higher. Apply for too many credit cards and your score could take a hit. Closing an account also lowers your credit score—even though it may be necessary to do so in order to avoid a credit card’s annual fees.

How to do a balance transfer

You can initiate the balance transfer through a phone call or online. You’ll need your account numbers for both, and you’ll also need to know the amount of debt you’re transferring.

Many balance transfers can’t be done between cards from the same issuer, so you’ll need a card from elsewhere to complete the transfer.

Lastly, some credit cards forbid balance transfers, while other cards even include home or auto loans to be added to a balance transfer. The range of balance transfer policies on cards can vary, so it pays to do some research before opening your next card.

Is transferring a balance a good idea?

If done with research, you can potentially save a lot of money. However, it relies on a good credit score, an introductory offer that comes in at the right time, and a consistent plan for paying off debt during that introductory time.

“A credit card balance transfer exists as a useful tool that can save you money when paying down your balance.”

You can even boost your credit score by paying your cards on time, keeping existing accounts open, and putting a dent in your debt. Conversely, opening too many cards and repeatedly transferring balances will cause a negative impact on your score.

A credit card balance transfer exists as a useful tool that can save you money when paying down your balance. If done too often, however, it can detract from your ability to take out loans, open new cards, or secure a healthy financial future.