If you have credit card debt that you're trying to pay off, what's the best plan of attack? Should you simply pay as much as possible until the debt is gone, or should you use a balance transfer credit card to save money on interest and give yourself a specific timeframe to pay it off?
Unfortunately, there's not a perfect answer. But in some cases, you can save a lot of money by using a balance transfer credit card. Here's how much a balance transfer credit card could potentially save you, and a few guidelines to help you decide.
Balance transfer credit cards are still available
Consumer interest rates have increased sharply in recent years. This is especially true of credit cards, as their interest rates are directly tied to the benchmark interest rates set by the Federal Reserve. According to data from LendingTree, the average credit card interest rate in the U.S. is nearly 25%.
Featured offer: save money while you pay off debt with one of these top-rated balance transfer credit cards
However, it might surprise you to learn that credit card issuers offering 0% intro APR balance transfers are just as abundant as ever. For example, the Discover it® Chrome credit card offers a 0% intro APR for 18 months on balance transfers, and also has an excellent rewards program. There's also the Wells Fargo Reflect® Card, which has a 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. And these are just two of the top balance transfer offers on our radar.
How much could you save?
By using a 0% intro APR balance transfer, you're guaranteeing that for the entire introductory period, 100% of the money you send your credit card company will be used to reduce the principal.
It's worth noting that transferring a balance isn't free. These cards typically have a balance transfer fee of 3% to 5%. So if you transfer a $10,000 balance with a 3% fee, you'll owe $10,300.
Let's take a look at the math here. As an example, we'll say that you owe $10,000 across various credit cards at an average APY of 25%. You want to pay your balance off over the next 18 months, and there are two ways you can do it.
First, you can make monthly payments of $671 per month on your existing credit cards. This, according to a financial calculator (there are some excellent credit card payoff calculators online), will eliminate the entire balance after 18 months. You'll end up paying $2,094 in interest along the way.
Second, you can get a credit card with a 0% intro APR on balance transfers for 18 months or more. If the card has a 3% balance transfer fee, you'll owe $10,300 after the transfer is complete. Dividing this by 18 months shows that you'll need to pay about $572 per month to get rid of your balance. You won't pay any interest this way, but there is still the $300 fee to consider. However, this option will save you $1,794 versus simply paying down your existing credit cards over 18 months.
Should you use a balance transfer credit card?
The short answer is that if the cost of repaying your credit card debt is likely to be more than the 3% to 5% balance transfer fee, using an 0% intro APR balance transfer offer could save you money. But it's important to mention that it isn't right for every situation.
Let's say you have credit card debt at a 24% APR and plan to aggressively pay it off within the next two months. In this case, the interest you would save from a balance transfer is unlikely to make paying the fee worth it.
On the other hand, using a balance transfer credit card offer can be a great tool to help you pay off costly credit card debt and take your time while doing it. As we've seen, the savings can be in the hundreds or even thousands of dollars, so if you want to pay off your credit card debt in the most economical way possible, a balance transfer credit card could be a smart move.
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FAQs
A balance transfer is when you move credit card debt from a high-interest card to a low-interest card to save money. As illustrated above, a well-timed balance transfer can save you thousands, if not tens of thousands in interest payments and help you clear your debt much faster.
Will balance transfer save me money? ›
A balance transfer can save you money by moving your debt from a high-interest credit card to one with a lower APR. Learn how they work, and find a card that fits your needs. Claire Tsosie is an assigning editor for the team responsible for expanding NerdWallet content to additional topics within personal finance.
What is the maximum you can balance transfer on a credit card? ›
Card issuers typically have rules surrounding the amount of debt you can transfer in relation to your credit limit. Many issuers are generous, giving cardholders the ability to transfer their full credit limit, but in some cases, your transfer limit may be capped at 75 percent of your overall credit limit.
Is there a downside to a balance transfer? ›
Transferring your debt has its drawbacks. Balance transfer credit cards often have a host of pitfalls that can potentially offset the benefits, including: Fees: Most credit cards have a 3% or 5% balance transfer fee. Temporary 0% APR: The 0% intro offer will eventually expire, and your regular APR may be 20% or higher.
Do balance transfers hurt your credit? ›
A balance transfer can improve your credit over time as you work toward paying off your debt. But it can hurt your credit if you open several new cards, transfer your balance multiple times or add to your debt.
What is the catch to a balance transfer? ›
The problem is that transferring a balance means carrying a monthly balance. Carrying a monthly balance by not paying off the minimum amount due each month—even one with a 0% interest rate—can mean losing the card's introductory APR, its grace period and paying surprise interest on new purchases.
Is a balance transfer ever a good idea? ›
Is a balance transfer fee worth it? If you have a significant amount of credit card debt, the 3% balance transfer fee (or sometimes even a 5% fee) is absolutely worth paying when transferring your balance to a card that has a 0% intro APR offer, but only if you still need time to pay off a balance.
What happens if you transfer too much money to your credit card? ›
In most cases, an overpayment on your credit card isn't likely to cause any problems. However, if it results in a significant negative balance, you could trigger a fraud alert. A large negative balance can sometimes be a sign that someone is laundering money.
What happens to an old credit card after a balance transfer? ›
After a balance transfer takes place, your old account remains open. The original card issuer will typically only close your account if you make a request for it to do so. Unless you have a good reason to cancel your old credit card, however, you may want to think twice before you close the account.
What is the max amount I can transfer? ›
NEFT/RTGS/IMPS Charges, Timings, Limits
| Transaction Limits/Timing | 01:00 hours – 19:00 hours | 19:00 hours – 00:00 hours and 00:00 hours – 01:00 hours |
|---|
| Minimum | ₹ 2 lakh | ₹ 2 lakh |
| Maximum | ₹ 10 lakh or Rs 1 crore (based on customer segment) | ₹ 10 Lakh or 50 Lakh(based on customer segment) |
In some cases, a balance transfer can positively impact your credit scores and help you pay less interest on your debts in the long run. However, repeatedly opening new credit cards and transferring balances to them can damage your credit scores in the long run.
Can a balance transfer go wrong? ›
Balance transfer credit card mistakes may add fees or cause you to lose your 0% introductory APR. Common mistakes you should avoid include missing the transfer deadline, making new purchases at the standard APR and not having a repayment plan.
How often should I do a balance transfer? ›
Transferring a balance multiple times can make a lot of sense if you do so as part of a solid plan to pay down debt that you can't afford to repay in one balance transfer cycle. Balance transfers offer promotional APRs for limited amounts of time. Sometimes it's as long as 15 months.
Is it better to close a credit card or transfer balance? ›
When possible, avoid closing your credit cards and look for alternative options to reign in your spending. If you are trying to save on interest, consider a balance transfer or 0% APR credit card. “In general, it's a good idea to keep all of your credit cards open, even if you aren't using them,” advises Tayne.
Is it bad to max out a balance transfer? ›
Avoid transferring a balance up to the new card's full credit limit. If you transfer a balance that either maxes out your new card or gives it a really high utilization rate, that could hurt your credit score. A maxed-out card can lower your score by more than 100 points, according to myFICO.
What happens if you keep doing balance transfers? ›
In theory, you can transfer balances between different issuers' cards as many times as you like, but the balance transfer fees may start to eat into any savings a lower interest rate may offer. Is it OK to have two balance transfer cards? Yes, you can have multiple balance transfer cards.
Will a balance transfer lower my monthly payment? ›
By completing a balance transfer, you'll end up paying less interest each month or no interest at all, depending on if your card comes with an introductory 0% APR offer on balance transfers.
Is balance transfer of loan a good idea? ›
A balance transfer can reap maximum benefits in the initial years of the loan tenor provided you get the ideal tenor and interest rate. Thus, if you are given a longer tenor with lower EMIs, your interest payouts will increase considerably, raising the credit cost.
How much will it cost in fees to transfer a $1000 balance to this card? ›
Balance transfer fee. This fee will typically be 3% to 5% of the amount transferred, which translates to $30 to $50 per $1,000 transferred. The lower the fee, the better, but even with a fee on the high end, your interest savings might easily make up for the cost.
How can I save money with balance transfer? ›
Start by finding a credit card with a lower interest rate than your current card, then transfer your balance (or a portion of it) to the new card. The idea is that the transferred balance on the new credit card will accrue low or no interest during an introductory period—usually anywhere from 6–24 months.
