Bottom Line Up Front
- Balance transfers can can be a great strategy to lower your current credit card interest rate.
- You can transfer your balance to an existing card or a new one — but look for one without balance transfer fees to maximize savings.
- When looking at balance transfer offers, make sure to note if the interest rate increases after a specific period of time.
Have you been receiving offers to transfer your credit card balance at special rates? A balance transfer is, as the name suggests, transferring a balance you owe to a credit card. It can be a great way to save money on higher-interest debt.
You’ll want to make sure you understand the details because these rates often change, depending on the circumstances.
Here are 7 things you should ask before you act.
- Is there a benefit to moving my balance? Transferring your debt to a lower-interest card can really help you save money. For instance, if you owe a large sum on a credit card with 23.74% annual interest, a 0% balance transfer offer on another card could save you hundreds over the course of a year.
You may want to rethink transferring, however, if:
- the offer has a higher rate than what you currently pay
- the rate changes if you add new purchases
- the rate becomes higher than what you’re paying after the introductory period ends
- Does the interest rate also apply to new purchases?
Make sure you check the details closely. Some offers only apply to the balance you’re transferring—so, if you make new purchases or get cash advances, the interest rate for the whole balance could change. If that’s the case, you may want to use the card only for paying down debt and not for new purchases. Or, find a card with a better offer.
- Does the interest rate expire?
Many balance transfer offers have a low promotional rate for a specific period of time—often from 6–21 months. After, that low teaser rate could change, so be sure you know what the rate will be after the promotional period ends. Then, consider whether or not you can realistically expect to be able to pay off your balance before then. If not, estimate what you’ll have left and compare that rate to what you’re paying on your current card.
- Will I be charged any fees to make the transfer?
Many financial institutions do charge a fee for each balance transfer. Typically, it’s between 3–5 percent. If, for example, you’re transferring a $5,000 balance, you’d pay a $150 fee at 3 percent or $250 at 5 percent. Some financial institutions, like Navy Federal Credit Union, don’t charge any balance transfer fees.
Keep in mind that some credit cards have an annual fee. If the one you’re considering does, factor that amount into how much you’ll be paying, because a 0 percent balance transfer offer that has a 5 percent annual fee could cost you more than one that has a 2.99 percent rate with no fees.
- Is there a limit on how much I can transfer?
Some offers have a maximum amount you can transfer. If your current card has a higher balance than the limit, you could end up making payments on two accounts. Other offers are limited only by your approved credit amount. If that’s the case, you may be able to transfer your current balance, even if it exceeds the offer limit, as long as it’s less than your credit line. Ask the lender if you’re not sure.
- Will transferring to a new card affect my credit?
If you close the older account, your score may temporarily decrease because it’s based partly on how long you’ve had your accounts and how much of your available credit you’re using. In some cases, it may be better to keep the first card open.
One way a balance transfer might improve your credit score is if you open a new card and as part of the balance transfer offer, you’re approved for a higher credit limit. That would increase your available credit, so the percentage of your debt wouldn’t be as large.
- Can I transfer the balance again?
If you haven’t paid off your balance by the time the promotional rate ends, you may be tempted to transfer it again. While it can be done, frequently opening new accounts while maintaining high debt levels may negatively impact your credit score. And, you usually can’t use multiple balance transfer promotions for different cards in the same financial institution.
You may, however, transfer a balance between cards you already have. For example, suppose you have two credit cards—one with a bank and one with Navy Federal. Imagine that your Navy Federal card has a better rate. You could consider transferring the balance on the card with the bank to your Navy Federal card.