How a balance transfer actually works
When you transfer a balance, you are asking a new credit card company to pay off the debt you owe on an old card. The new card company sends money directly to your old card issuer to clear that balance. You then owe the new card company instead of the old one. The debt itself does not disappear — it moves.
The new card company does this because they want your business, and they often offer a lower interest rate for a set period (called a promotional rate) to make the move attractive. During that promotional window, you pay less interest on the transferred amount. After the promotional period ends, the regular interest rate kicks in.
The catch is that balance transfers cost money upfront. Most cards charge a balance transfer fee, usually between 3 and 5 percent of the amount you transfer. If you move a $5,000 balance and the fee is 4 percent, you pay $200 when ready. That fee gets added to your new card's balance.
Key Takeaways
- A balance transfer moves your debt from one card to another, usually to take advantage of a lower promotional interest rate that lasts 6 to 21 months depending on the card.
- You pay a balance transfer fee upfront (typically 3 to 5 percent of the amount transferred) that gets added to your new balance.
- The math only works in your favor if the interest you save during the promotional period exceeds the fee you pay at the start.
- You need decent credit (usually a score of 670 or higher) to get approved for a balance transfer card with a promotional rate.
- The promotional rate applies only to the transferred balance, not to new purchases you make on the new card.
When a balance transfer saves you money
A balance transfer only makes sense if the interest you save is larger than the fee you pay. Here is how to check: multiply your current balance by your current interest rate, then multiply it by the number of years you plan to pay it off. That is roughly how much interest you will pay if you do nothing. Then calculate the same thing using the new card's promotional rate and the length of the promotional period. Subtract the fee from your savings.
Example: You owe $3,000 at 22 percent interest. You plan to pay it off in two years. At 22 percent, you will pay roughly $660 in interest. A new card offers 0 percent for 12 months, then 18 percent after that. The fee is 3 percent ($90). During the 0 percent period, you pay nothing. After that, you owe 18 percent on whatever balance remains. If you pay $125 a month, you will have paid off $1,500 in the first year, leaving $1,500 at 18 percent for the second year — roughly $270 in interest. Total: $90 fee plus $270 interest equals $360. You save $300 compared to staying put.
If you cannot pay off the balance before the promotional rate ends, the math changes. The longer you carry a balance after the promotional period, the less the transfer helps you. Some people transfer a balance, fail to pay it down during the 0 percent window, and end up worse off because they paid the fee for almost no benefit.
What credit score you need
Balance transfer cards with the best promotional rates usually require a credit score of 670 or higher. Some cards will approve people with scores in the 600s, but the promotional rate will be shorter or the fee will be higher. A few cards have no minimum score, but they offer no promotional period either — the interest rate is the same as any other card.
Your credit score reflects your payment history, how much debt you carry, and how long you have had credit accounts open. If your score is below 650, you may not be approved for a balance transfer card at all. In that case, you have other options: a personal loan from a bank or credit union (which may have a lower rate than your current card), a debt consolidation loan, or a plan to pay down the card where it sits.
The step-by-step process
First, decide which card you want to transfer to. Look at the promotional rate length, the balance transfer fee, and the regular interest rate that applies after the promotional period ends. Read the fine print to confirm the promotional rate applies to transferred balances, not just new purchases.
Second, open the new card. You will need to provide your name, address, Social Security number, income, and employment information. The card company will check your credit and tell you whether you are approved and what your credit limit is. This usually takes a few minutes to a few days.
Third, request the balance transfer. You can do this during the process process or after the card arrives. You will need the account number of the old card and the exact balance you want to transfer. The new card company will contact your old card issuer and arrange the payment. This usually takes 5 to 14 business days.
Fourth, stop using the old card once the balance is transferred. You can keep the account open (which helps your credit score) or close it (which simplifies your life). Closing it will lower your available credit, which can hurt your score slightly.
Fifth, make a payment plan for the new card. Write down the promotional period end date and calculate how much you need to pay each month to clear the balance before that date. Set up automatic payments if possible. Any balance left when the promotional rate ends will be charged the regular interest rate.
What happens to new purchases on the new card
The promotional rate applies only to the transferred balance. Any new purchases you make on the new card are charged the regular interest rate when ready, with no grace period. If you carry a balance on new purchases, you will pay interest on them right away.
This is why many people keep their old card open and use it for new purchases during the promotional period. That way, the new card balance stays focused on the transferred amount, and you are not mixing promotional and regular rates on the same card. Once the transferred balance is paid off, you can use the new card normally.
Risks and common mistakes
The biggest mistake is transferring a balance and then running up new debt on the old card. You end up with two large balances instead of one. Before you transfer, cut up the old card or freeze it in a drawer so you are not tempted.
Another mistake is transferring a balance you cannot pay off before the promotional period ends. If you transfer $5,000 at 0 percent for 12 months but only pay $200 a month, you will still owe $2,600 when the promotional rate expires. That remaining balance will be charged the regular interest rate, which may be 18 percent or higher. You will have paid the transfer fee for almost no benefit.
A third mistake is transferring to a card with a higher regular interest rate than your current card. Some balance transfer cards offer great promotional rates but charge 24 percent or more after the promotional period ends. If you do not pay off the balance in time, you will be worse off than you started.
Finally, do not explore for multiple balance transfer cards in a short time. Each process triggers a hard inquiry on your credit report, which lowers your score slightly. Multiple inquiries in a few weeks can signal to lenders that you are desperate for credit, which makes approval less likely and rates worse.
Alternatives if a balance transfer does not work for you
If your credit score is too low for a balance transfer card, or if you do not think you can pay off the balance in time, consider a personal loan. Banks and credit unions offer unsecured personal loans with fixed interest rates and fixed payment schedules. The rate is usually lower than a credit card rate, and you know exactly when the loan will be paid off. The downside is that you pay interest from day one — there is no 0 percent promotional period.
Another option is a debt consolidation loan, which works similarly to a personal loan but is designed specifically for paying off multiple debts. You borrow a lump sum, use it to pay off your cards, and then repay the loan over a set period.
If you have significant equity in your home, a home equity line of credit (HELOC) or home equity loan may offer a lower rate than either a personal loan or a balance transfer. The risk is that your home becomes collateral for the debt.
Frequently Asked Questions
Can I transfer a balance from one card to the same card company?
Most card companies do not allow you to transfer a balance from one of their cards to another of their cards. You must transfer to a different company. Check the card's terms before you explore.
What if I transfer a balance but then lose my job?
You still owe the balance. The card company will not forgive it. If you cannot make payments, contact the card company and ask about hardship programs — some offer lower interest rates or payment deferrals for people facing temporary hardship. Do not ignore the debt, as missed payments will damage your credit score.
Does a balance transfer hurt my credit score?
Yes, but usually only temporarily. The hard inquiry and new account lower your score by a few points. Over time, as you pay down the balance and keep the account open, your score will recover. Closing your old card after the transfer can hurt your score more, because it reduces your available credit.
Can I transfer a balance from a store card or gas card?
Yes. A balance transfer works with any credit card, including store cards and gas cards. The process is the same.
What if the balance transfer does not go through?
Contact the new card company and ask why. Common reasons include the old card account being closed, the account number being wrong, or the old card company refusing the transfer for fraud prevention. If the transfer fails, you can request it again or try a different card company.