Is a Balance Transfer a Good Idea?

If you’re trying to get a handle on your credit card balances, you’re already taking a smart step by exploring your options. Card companies don’t let you use one credit card to make a payment on another credit card. However, you can still move debt between cards using a special type of transaction called a balance transfer. It’s a simple strategy that can help you save on interest and make real progress toward paying down what you owe.

Balance transfers aren’t free. Each balance transfer transaction comes with a balance transfer fee from the card that accepts the transfer—usually 3% to 5% of the amount transferred.

Given the fee, you might wonder why people would want to make a balance transfer. Under certain circumstances, a credit card balance transfer could help you pay off debt faster.

How a Balance Transfer Could Help You Pay Off Debt

Your card's interest rate and your balance determine how much you pay in interest fees. Reducing your interest rate means you'll pay less interest on your balance.

If you can qualify for a balance transfer credit card with a 0% interest introductory period, balance transfer can be a great strategy. When you don’t have to pay any interest fees, you could save  hundreds of dollars a month, depending on your balance. Put that extra money toward paying down your balance, and you could make serious progress in debt payoff. 

Use balance transfer calculators to estimate potential savings

Use an online calculator to figure out if a balance transfer will save you money. A search will turn up options for several balance transfer calculators.

When Credit Card Balance Transfers Don't Help

Although balance transfers can be  useful, they're not right for every situation. Here are some times when a balance transfer card won't help you pay off debt.

You can't qualify for a lower interest rate

First, you’ll have to get approved for the card—and you need an interest rate low enough to make it worth the bother (and balance transfer fee). For both, you typically need good credit, which is a FICO Score of 670 or higher. 

If your credit history shows missed payments or maxed-out cards, you might not be able to qualify for a better interest rate offer. The fee to move your debt around isn’t worth it if you don’t save money on interest.

Your credit limit is too low

The next step is getting a credit limit high enough to handle your debt. You can only transfer up to your credit limit—and your balance transfer fee is tacked onto the amount you move, so add that to your calculations.

A low credit limit could mean you can't transfer all of your debts. Even if it fits your debts, you may end up with a card that is close to maxed out, which could ding your credit scores.

You can't pay off the debt before the offer expires

Introductory offers are temporary. When the offer expires, your interest rate goes up to the standard rate, which is typically over 20%. Any balance you haven't paid off will start accruing interest at that higher rate.

Alternatives to Balance Transfers for Managing Debt

You have more options than just balance transfers to deal with your debt. Consider some of these alternatives:

• Personal installment loan. Installment loans tend to have lower interest rates than regular credit cards. Also, you can often qualify with fair credit, which could make personal loans easier to get than balance transfer cards. You may also qualify for a larger loan, which would make debt consolidation possible.

• Debt management plan (DMP). A DMP is a structured consolidation program offered by nonprofit credit counseling agencies. These plans work best if you can afford your debt but need help setting up a repayment plan.

• Chapter 7 bankruptcy. If you qualify, Chapter 7 bankruptcy, also called a liquidation bankruptcy, could help get rid of your unsecured debt for a financial reset. You’ll need to meet some eligibility criteria, and only eligible unsecured debts can be forgiven through bankruptcy.

• Debt relief. Also called debt settlement. You ask your creditor to accept less than you owe and forgive the rest. You could negotiate on your own or hire a professional debt settlement company.

Balancing the Pros and Cons of Transfers

Whether a balance transfer is a good idea depends on your personal circumstances. If you can qualify for an intro APR balance transfer offer and you can pay off the balance before the end of the introductory period, it could make a lot of sense. Folks who can't qualify for an offer or don't get the credit limit they need may want to consider other options.