Should You Use a Balance Transfer Credit Card?

Find out when it’s wise to pay off debt using a transfer card and where to find the best one.

Laura Adams, MBA
6-minute read
Episode #146
Last week I talked about how to pay off your credit cards.  But did you know that there's a type of credit card that can help you do just that, so long as you know how to use it?  This podcast is about how to use a balance transfer credit card wisely and which cards have the best offers right now. Here’s a clip from a voicemail I received:

“I was curious on what your opinion was on balance transfers and what credit card offers the best option. Thank you so much for your podcasts, they are so informative and I tell all my girlfriends about you. I hope you’re having a good night, hopefully I’ll see the post on your show. Talk to you soon, bye-bye.”

What’s a Balance Transfer Credit Card?

The caller didn’t leave her name, but I certainly appreciate the question and the kind words! For anyone who may not be familiar with balance transfer credit cards, they’re a special type of card that offers a very low or 0% interest rate. That means you can keep a balance on the card without having to pay a penny in interest, in some cases.

You can use a transfer card to pay off higher-interest debt, such as credit cards, lines of credit, or loans, and save a substantial amount of interest. Here’s how it works: After you’re approved for a transfer card, you’ll receive a small supply of checks that you can write on the new account. Let’s say you have a $3,000 balance on a high interest card with the Crafty Credit Bank. If you want to pay off that entire balance and transfer it to the new card, you’d make one of the transfer checks payable to Crafty Credit Bank for $3,000 and mail it to them. Now your $3,000 balance is transferred from your old high-interest card to your new low or no-interest card.

That sounds fabulous, doesn’t it? Well, before you rush to submit an application … there’s a catch. The catch is that the low rate on balance transfer cards is only temporary. It’s an introductory offer that runs out after a certain period of time, typically anywhere from three months to a year. The amount you can transfer is also subject to the credit limit you’re offered. Additionally, most transfer cards charge a fee for each balance that you transfer that could range from 2% to 5% of the amount you move to the card. For example, if you owe $10,000 on a high-interest auto loan and decide to transfer it to a card with a 3% transfer fee you’d be charged $300, increasing your debt to $10,300.

You must have good credit to qualify for the best balance transfer deals. Even though the offer might say 0% interest, you may only qualify for a 12% rate, for instance, which would defeat the purpose of getting a transfer card.

A Good Strategy for Using a Balance Transfer Credit Card

To use a balance transfer card wisely, you must have a solid exit strategy for paying your balance off before the promotional rate expires. You should never, ever transfer a balance without knowing for sure that you’ll be able to pay it off in full before the low rate ends. Shifting debt to a credit card with a lower interest rate obviously doesn’t make the balance go away, but it can make the debt less expensive for a limited period of time. That’s called “optimizing” your debt. 

To use a balance transfer card wisely, you must have a solid exit strategy for paying your balance off before the promotional rate expires.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.