A balance transfer credit card is a financial tool designed to help you manage and pay down debt more efficiently. It allows you to move existing debt from a credit card or another type of loan that is currently accruing interest to a new credit card that offers a 0% introductory APR (Annual Percentage Rate) for a specific period. This means you won’t be charged interest on the transferred balance during that promotional timeframe.
How the 0% Intro APR Period Works
- Interest-Free Repayment: During the 0% intro APR period, all of your payments go directly towards reducing the principal amount of your debt, rather than being eaten up by interest charges. This can significantly accelerate your debt payoff.
- Duration: Promotional periods vary, but many balance transfer cards offer a substantial time horizon, often well over a year (e.g., the Wells Fargo Reflect® Card offers a long 0% interest period). Longer periods generally offer more flexibility and allow for smaller monthly payments, which can be helpful if you have other financial commitments.
- Crucial End Date: It is critically important to know the exact end date of your card’s promotional APR period. Once this period expires, the card’s normal ongoing interest rate (which can be significantly higher, like the 17.14% average credit card APR for accounts incurring interest in Q2 2019) will apply to any remaining balance and new purchases.
- On-Time Payments Are Essential: Even with 0% interest, you must continue to make your minimum monthly payments on time. A single late payment can result in the immediate loss of your promotional 0% APR, and you might even be charged a penalty APR, which is typically much higher than the card’s usual rate (sometimes close to 30%).
- Tool for Payoff, Not Storage: A balance transfer card should be viewed as a strategic tool to actively pay down debt, not merely a place to temporarily “stash” debt and ignore it.
Nerdy Tip: Credit cards often have different APRs for different transaction types. A card might offer a 0% intro APR specifically on balance transfers, while new purchases made on that same card could be subject to the card’s regular, variable APR. If you make new purchases on a card with a balance transfer, be aware of how interest applies to those new transactions. It’s often best to avoid making new purchases on a balance transfer card to focus solely on paying down the transferred debt interest-free.
Balance Transfer Fee
Most balance transfer credit cards charge a balance transfer fee, which typically ranges from 3% to 5% of the amount you’re transferring. While this might seem small, it adds $30 to $50 for every $1,000 transferred.
When the Fee is Worth It:
- If the amount you’ll save in interest during the 0% intro APR window significantly outweighs the balance transfer fee.
- If the card offers other features that are particularly valuable to you.
- If you need a few extra months of no interest and the flexibility it provides, even with a higher fee.
Some credit cards offer no balance transfer fee, but their 0% intro APR periods are usually shorter (e.g., 6 to 15 months).
Current Credit Card Issuer
You generally cannot transfer debt between cards from the same issuer. For instance, you typically can’t transfer a balance from one Citi card to another Citi card. This is a common rule across most major banks, as 0% APR offers are largely used to attract new customers. This rule can, however, help narrow down your options when searching for a suitable balance transfer card.
Other Balance Transfer Considerations
- Credit Score Impact: Applying for a new credit card results in a “hard inquiry” on your credit report, which can cause a slight, temporary dip in your credit score. Opening a new line of credit can also slightly reduce the average age of your credit accounts, another factor in your score.
- Credit Utilization Ratio: Conversely, having a larger total credit limit across all your cards (due to the new card) can potentially lower your credit utilization ratio (the amount of credit you’re using compared to your total available credit), which can positively impact your score if your debt is being paid down.
- Running the Numbers: Ultimately, the decision to use a balance transfer card comes down to a financial calculation. If the interest savings you gain during the promotional period, minus any balance transfer fees, represent a significant financial benefit compared to keeping the debt on your current card, then a balance transfer may be the right move for you.