What is a balance transfer and how does it work?

According to the Government Accountability Office (GAO), 82% of American adults own at least one credit card, and as of 2023, their debt has so far exceeded $1 trillion.

Balance transfers are a popular way to manage this type of debt and reduce the interest consumers pay. But what is balance transfer and how does it work? Is it the best solution to get out of debt?

Read on to learn more about balance transfers and to determine if it’s the right move for you.


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What is a balance transfer?

A balance transfer moves existing credit card debt from one card to another. This is typically done to take advantage of a lower interest rate as many specialist balance transfer cards offer an introductory period with no interest charges on transfers (and often on purchases too).

It’s important to note, however, that credit cards with this type of balance transfer offer are intended for people with good to excellent credit. If your current credit is fair or poor, it may be best to look for debt consolidation loans with easier credit requirements or a debt relief company that can help you throughout the process.

How do balance transfers work?

Essentially, when you request a balance transfer (and it’s approved), the new issuer pays off your debt to the previous issuer. You will then owe the new lender the transferred balance, which is now subject to the terms and conditions of the new card, including the expiration date and annual percentage rate (known as the regular or variable APR). A balance transfer fee will also be added to the transferred balance, usually between 3% and 5% (or a minimum of between $5 and $10, depending on the amount) of the total.

It is important to note that it is not possible to transfer a balance between cards from the same credit card issuer. For example, you will not be able to transfer a balance from a Chase Freedom Unlimited® credit card to a new Chase Freedom Flex® credit card.

What is a balance transfer credit card?

A balance transfer credit card is a regular credit card with some specific features and benefits related to balance transfers. The most common – and arguably most attractive – feature is a 0% introductory APR on balance transfers during a set period of time. Some cards may offer a lower balance transfer fee – or waive it entirely – as well as a low regular APR on top of (or in place of) the introductory APR.

If you’re selecting a balance transfer credit card, be sure to read our article on the best balance transfer credit cards which features some of the best 0% APR offers on balance transfers, new purchases and more.

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How to make a balance transfer

Balance transfers are relatively simple to set up, especially on credit card company websites and mobile apps. Here are the steps to follow:

Choose a balance transfer card

You don’t necessarily need a new credit card to make a balance transfer, as many credit cards offer this service. However, if you’re trying to pay off debt, a new card with an actual balance transfer offer could be a much better option.

The best choice will depend on the amount of debt you are carrying, your repayment plan, your credit score and credit history. Credit cards focused on balance transfers have promotional interest-free periods of up to 21 months, but don’t offer many benefits beyond that.

Others may have shorter introductory periods (12 to 15 months), but include additional benefits such as insurance coverage and cash rewards.

Determine the transfer amount

In most cases, you can transfer any amount you want from one card to another, although factors such as the new card’s credit limit and the amount of the balance transfer fee may limit the total you can transfer.

For example, if your new card has a $2,000 limit and a 5% balance transfer fee, you’ll only be able to transfer $1,900 since you’ll have a $100 fee added to your balance.

If the balance you want to transfer exceeds the limit you have been approved for, you will need to look for other alternatives, such as debt consolidation loans or debt relief companies. Or work out a new repayment plan to get rid of interest accrued balances left on your old card as soon as possible, as it may be harder to find other options after opening a new account.

Start the transfer

To initiate a balance transfer, all you need to do is log into the issuing platform of your new card or the recipient’s card and look for the “balance transfer” option. (It may also be called “transferring a balance” or “making a transfer.”)

You can also request a balance transfer from your new card issuer by phone, by submitting a form, or in person by going directly to a physical bank branch.

In all these cases, you will need to provide your old card’s account number, expiration date and CCV number on the back, as well as the amount you wish to transfer. Then it is up to the broadcaster to deal with it; you will be informed once the transfer is approved and then completed.

To pay the debt

Once your transfer has been processed and you can see the new balance on the receiving card, it’s time to implement your repayment plan. You’ll need to make monthly payments, like with any other card, at the end of each billing cycle. There is a set minimum payment, but if you can afford it, it’s a good idea to pay more to pay off the majority of your debt during the 0% interest period.

Keep in mind that once the 0% APR period ends, your balance will begin to accrue interest, which is why it’s important to pay off most or all of your balance before it expires. It’s also possible that after the introductory offer ends, the regular APR on your new balance transfer card could be even higher than that of your previous card.

If you’re having trouble coming up with a plan to pay off your balance, you can check out our How to Pay Off Credit Card Debt article for a clearer picture of how to get started.

How long does a balance transfer take?

A balance transfer typically takes 7 to 14 business days to complete, but could be less or more.

Keep in mind that during the process you may see the balance on both credit cards at the same time, and this duplicate amount may also appear on your credit report. However, this is only temporary and won’t actually affect your credit score later.

How does a balance transfer affect your credit score?

A balance transfer generally does not have a negative impact on your credit or FICO score. However, if you apply for a new credit card, there will be a hard inquiry reflected on your credit report, which can decrease your score slightly.

On the other hand, there are positive effects that can overcome these drawbacks. A new credit card increases your available credit, which will most likely improve your credit utilization ratio which ultimately results in a better credit score.

As for the old credit card, it is advisable to keep the account open as it increases the amount of credit available and maintains the age of the credit, both important factors that affect your score. Closing it could cause a major drop in your credit score. However, it is advisable not to use it at all or to use it sparingly to avoid incurring further debt while paying off your existing balance.

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Frequently asked questions about What is balance transfer

What is a balance transfer fee?

A balance transfer fee is a percentage of the amount transferred, typically 3% to 5% or a minimum of $5 to $10, whichever is higher. Most credit cards charge this fee, although some may lower it to 5% to 3%, or not charge it at all, during a specified period of time, usually for transfers made within the first three months of account opening.

Are there alternatives to balance transfer?

In addition to balance transfers, alternatives to paying off credit card debt include personal loans, debt consolidation loans, or debt relief companies. The best option for you will depend on several factors: the amount of debt, your ability to get a credit card or loan, your repayment plan, and, of course, personal preferences. While using something like a debt relief company may take longer, it might also provide benefits like credit counseling or the ability to pay off a larger amount of debt than a balance transfer could handle.

Summary of what a balance transfer is and how it works

Balance transfers allow you to move partial or entire balances from one card to another with a 0% or lower APR. Balance transfer cards often provide an introductory 0% APR period of between 12 and 21 months and are one of the best options for reducing the amount of interest you pay on your debt. Transfers can be easily made via the issuer’s website or mobile app and take, on average, 7 to 14 days to process. Most cards charge a fee for balance transfers, but the interest savings during the introductory period usually exceeds this.

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