How to Save Money Using a Balance Transfer Credit Card

Not sure if a balance transfer credit card offer is right for you? Laura explains what a transfer card is, the pros and cons, and when it can help you save money. You’ll learn smart tips to cut your interest expense and get out of debt faster.

Laura Adams, MBA
7-minute read
Episode #563

If you’ve ever received a balance transfer credit card offer through the mail or online, you may have wondered if it could help or hurt your finances. These promotional offers can be an easy way to save money. However, if you don’t use them wisely or understand the fine print, they can cost you.

In this post, I’ll explain what a balance transfer credit card is, the pros and cons, and when it can help you save money. You’ll learn smart tips to cut your interest expense and get out of debt faster.

What Is a Balance Transfer Credit Card?

A balance transfer credit card is just like a regular credit card, except that it includes an incentive to transfer balances from other accounts. You pay an annual percentage rate (APR) of 0% during a promotional period that’s typically in the range of six to 18 months. In general, you’ll need good credit to qualify for the best transfer deals.

Every transfer offer is different depending on the issuer and your financial situation, but the longer the promotional period the better. You don’t accrue one penny of interest until the promotion expires.

However, you typically must pay a one-time balance transfer fee in the range of 2% to 5%. For example, if you transfer $1,000 to a card with a 3% transfer fee, you’ll be charged $30, which increases your debt to $1,030. So, choose a transfer card with the lowest transfer fee and no annual fee, when possible.

When you’re approved for a transfer card, you’re given a credit limit, just as with other types of credit cards. You can pay off just about any debt—such as a balance on a different credit card, an auto loan, or a personal loan—in an amount up to your credit limit on the transfer card.

Once approved, most issuers provide paper convenience checks or give you the option to have funds deposited into your bank account, so you can pay one or more of your creditors. Or they may require that you complete an online form indicating who to pay, the account number, and the amount, and then send funds to creditors on your behalf.

Once the transfer is complete, the debt balance moves over to your transfer card account and any transfer fee is added. But even though no interest is added to your account, you must still make monthly minimum payments throughout the promotional period.

Missing a payment means your sweet 0% APR could be ripped out from under you and replaced with a default rate as high as 30%! That could easily wipe out any benefits you hoped to get by doing a balance transfer in the first place.

When You Should Use a Balance Transfer Credit Card

I’ve used several balance transfer offers and they can be an easy way to save money when used the right way. Doing a transfer is a good strategy if, and only if, you know for sure that you can pay off the balance before the offer’s expiration date.

The Debt.com 2018 Credit Card Survey found that 68% of respondents used a 0% balance transfer offer and paid off their balances in time, but 32% didn’t. Carrying a balance after the promotion means that your interest rate goes back up to the standard rate, which could be much higher than what you paid before the transfer.

Here are some examples for when doing a transfer is a good idea. Let’s say you’re having a good year at work and are going to receive a $5,000 bonus within six months. You plan to use the bonus to wipe out your $4,000 credit card debt.

Instead of waiting for the bonus, you can pay off the balance with a no-interest transfer card. When you receive your bonus you’d pay off the transfer card in full, before the promotion expires. You’d pay no interest and save money during the promotional period.

Another example is if you bought a car when you had bad credit and got a high, 17% APR. If your credit is better now, you could apply for a balance transfer card and save.


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.