What Is a Balance Transfer, and How Do They Save Money?

The best balance transfer credit cards help you pay down debt faster by allowing you to put all of your payments toward principal.

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If you’re paying off a credit card balance with a high interest rate, signing up for a new card that offers balance transfer benefits could save you hundreds of dollars in interest payments. Since many cards offer 0% APR for a certain introductory time period, all you have to do is pay off the balance within that time frame to avoid all those hefty interest charges.

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What Is a Balance Transfer Credit Card?

A balance transfer credit card is a credit card specifically focused on encouraging consumers to move their debt. A balance transfer credit card usually offers a 0% APR for a limited period of time to attract borrowers who are tired of a high interest rate. In many cases, it’s possible to find a balance transfer credit card that will offer 0% APR on balance transfers for 12, 15, 18 or 21 months.

Generally, your new card issuer pays off your debt with the other creditor and you make payments to your new creditor instead.

What Is a Balance Transfer Fee?

Many credit card issuers charge a fee to handle the process of moving your debt from your old creditor to the new card. It’s common for balance transfer fees to be between 3% and 5% of the amount you transfer. Some creditors might also impose a minimum fee of $5 or $10. This fee is typically added to your credit card balance.

MORE: Best ‘No Annual Fee’ Credit Cards: Compare Offers, Rewards and Sign-Up Bonuses

For example, if you transfer $2,000 to your new card, and the balance transfer fee is 5%, you’ll end up paying $100 to move the money. That amount is added to your balance, making it $2,100. However, the interest savings from moving your money could easily make up for your balance transfer fee.

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How to Make a Balance Transfer

Most credit card issuers have their own instructions for making a balance transfer. In general, though, you need to provide the following information to your new creditor:

  • Old creditor’s company name
  • Your account number
  • The payment addressed used by your previous creditor

Make sure you follow the directions provided by your new creditor to ensure that your balances are transferred properly.

How Much Can You Save With a Balance Transfer?

The amount of money you can save with a balance transfer depends on the size of your balance and your interest rate. Let’s say that you have $1,000 on a credit card with an APR of 17.49%. According to Bankrate’s calculator, if you make a payment of $50 each month, it will take you 24 months and you’ll pay $190 in interest over that time.

Now, if you get a balance transfer credit card with no balance transfer fee, you can pay $56 per month to have that debt paid off in 18 months — with no money going toward interest. That’s $190 you don’t have spend on interest. You could potentially save even more if you have a bigger balance or a higher interest rate.

For example, if you’ve got a credit card with a 22.49% APR and you’re only making $35 per month in payments, you’d pay $445 in interest and be in debt for 42 months.

You can see how a balance transfer, when you don’t have to pay interest, and you can make slightly higher payments, can save you hundreds of dollars. If you want to get out of debt faster, a balance transfer can be a good step in the right direction.

Benefits of a Balance Transfer Fee Credit Card

Even with a balance transfer fee, though, you can still come out ahead with one of the best balance transfer credit cards. For example, let’s say you transfer $5,000 from a card with a 17.49% APR. You’re currently paying $200 per month. If you stick with that schedule, you’ll take 32 months to pay it off — and pay $1,263 in interest.

Now, if you perform a balance transfer to card with a 3% fee, you’ll have to pay off $5,150. If you can make a payment of $287 per month, you can have the total taken care of in 18 months, and save $1,113 in interest. Even paying the balance transfer fee, you come out ahead.

With a balance transfer credit card, you save money in interest and get out of debt faster.

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Credit iStock.com /damircudic

What to Look for in a Balance Transfer Offer

When considering a balance transfer offer, it’s important to pay attention to what matters to you, and what is likely to help you to reach your goals. Some features to pay attention to include:

  • Introductory period: Pay attention to how long the intro period lasts. Many of the best balance transfer credit cards come with a period of 15 months. If you need longer, though, you can look for a card with an 18-month or 21-month intro period.
  • 0% APR: Most balance transfer offers come with a 0% APR, but there are some with low rates of up to 3.99%. Try first for balance transfer offers that don’t charge interest so your entire payment goes to principal.
  • No or low balance transfer fee: Your best results come when there’s no balance transfer fee. However, cards that don’t charge a balance transfer fee are few and far between. If you have a big balance, look for a card with no fee, or one that charges a lower 3% fee instead of a 5% fee.
  • 0% APR purchase APR: When possible, look for a card that also offers 0% APR on purchases. You might not get a purchase period as long as the balance transfer offer, but it can be a way to put off paying interest on purchases, especially if you’re making a large purchase.
  • Rewards and signing bonuses: Don’t forget to consider rewards and signing bonuses that can make cards more efficient. You can earn cash back that can then be put toward paying down your debt. As long as you work toward paying off what you spend each month and have a plan to pay off your balance before the end of the intro period, you should come out ahead.

Prioritize different features based on your immediate needs so that your most pressing issues are handled first. You might have to make trade-offs in order to get the best result.

How Does Balance Transfer Impact Credit Score?

A balance transfer can have an impact on your credit score first by resulting in a hard inquiry. When you apply for a credit card, the hard inquiry can lower your score by right around five points. On top of that, opening a new credit card affects the average age of your credit. New credit can mean a lower average age, which can also have a small negative impact on your score.

However, over time, the positive impact on your credit score can outweigh these issues. When you complete your balance transfer, your credit utilization changes. You end up with a smaller ratio, which can boost your score. As long as you keep making on-time payments on the new card, you’ll see positive impacts from your payment history. Credit utilization and payment history account for about 65% of your FICO score. Properly managing a balance transfer can boost your score.

What Are the Best Balance Transfer Credit Cards?

If you’re looking for a way to bypass the interest and super-charge your debt repayment efforts, here are the best credit cards for balance transfers. Scroll past the comparison table for more information on several of these cards. Visit our guide to the best balance transfer credit cards for full, in-depth reviews.

Chase Freedom Unlimited®

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Credit: Twenty20

Chase Freedom Unlimited is the perfect rewards card to give you just a little extra back for all of those purchases that do not fall into the popular spending categories like dining or groceries. The Freedom Unlimited gives you 1.5 Ultimate Rewards point per dollar spent on everything.

Apply Today

    • Annual Fee: $0
    • Value: 1.5X points cash back on all purchases
    • Sign-Up Bonus: $150 bonus after spending $500 during the first three billing cycles
    • Pro: 0% intro APR on balance transfers and purchases for 15 months
    • Con: Better cash-back cards for spending in other categories

Blue Cash Everyday® Card

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Credit: Twenty20

If you’re looking for a cash-back credit card that leaves many of its competitors in the dust, consider American Express’ Blue Cash Everyday Card. It offers deep cash-back rewards at grocery stores, gas stations, online streaming subscriptions and transit services like tolls, taxis and ride-shares.

Apply Today

  • Annual Fee: $0
  • Value: 3% cash back at supermarkets, 2% cash back at U.S. gas stations and some department stores and 1% cash back on everything else
  • Sign-Up Bonus: $150 bonus after spending $1,000 during the first three billing cycles
  • Pro: 15 months of 0% APR on purchase and balance transfers
  • Con: Cash back comes in the form of a statement credit, rather than a check

Bank of America® Cash Rewards Credit Card

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Credit: Twenty20

The Bank of America Cash Rewards credit card is among the most popular credit cards for people who want a cash-back card without all the bells and whistles of the more complicated premium cards. Not only does the Cash Rewards Card reward you generously with 3% and 2% cash-back options, it doesn’t have an annual fee and even offers an introductory 0% interest rate for the first 15 billing cycles. Read our full review of the Bank of America Cash Rewards credit card.

Apply Today

  • Annual Fee: $0
  • Value: 3% cash back in rotating categories and 2% cash back at grocery stores
  • Sign-Up Offer: $200 after spending $1,000 during the first three billing cycles
  • Pro: 15 months of 0% APR for purchases and balance transfers
  • Con: Difficult to remember to opt in for rotating categories

NEXT: Best Credit Cards for Bad Credit

We want to make sure you get the best deal! Our editors strive to ensure that the information in this article is accurate as of the date published, but please keep in mind that offers can change. We encourage you to verify all terms and conditions of any financial product before you apply. Also, please remember this content wasn’t provided, reviewed or endorsed by any company mentioned in this article.

Ryan Tronier

Ryan Tronier is a personal finance editor and writer. He has worked in journalism and publishing for nearly two decades before becoming Slickdeals' Personal Finance and Credit Card Editor. Ryan's work has appeared in publications like USA TODAY, NBC News, Sapling and Techwalla. Find him online at ryantronier.com.

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