Pros and Cons of Balance Transfers

Paying off debt takes time, but there are tools that may help you do it more quickly and for less money. Balance transfer credit cards are a popular option, especially if you have high-interest credit card debt.

Balance transfer cards let you move debt from one credit card to the transfer card. Even more tempting, these cards typically have low—usually 0%—introductory interest rates on transferred balances that can last for 12 months or more.

While you might save on interest, transfers are rarely free. And intro periods expire, often leaving you with sky-high interest rates on any remaining balance. Let's look at the pros and cons of balance transfer cards so you can make an informed choice.

Pros of Balance Transfer Credit Cards

The biggest benefits of balance transfers are the low introductory rates and consolidating your debt. Here’s more on these perks.

Pay 0% interest for an introductory period

The main draw of balance transfer cards is the special promotional rate. Many of these cards have a 0% interest rate on transferred balances during an introductory period, meaning you don’t get charged interest at all during that time. This period could range from six to 21 months, depending on the card.

Eliminating those expensive interest fees, even temporarily, could save you a lot of money.. Imagine you have $10,000 in credit card debt at 20% APR. You’re paying $400 per month. At that rate, you’ll pay off your debt in about 33 months, with $3,044 in total interest.

Or, you could transfer that debt to a card with a 0% intro APR for 18 months. It has a 3% balance transfer fee, and a 20% APR after the intro period. If you paid the same $400 per month, you’d be out of debt in about 27 months with only $548 in interest and fees.

In this scenario, a balance transfer helps you get out of debt six months earlier while saving nearly $2,500 in interest fees.

Simplify your finances with debt consolidation

If you have several debts, you could use a balance transfer card for debt consolidation. As long as the credit limit allows, you could transfer multiple credit card balances—and sometimes other debts—to the new balance transfer card card. 

Debt consolidation often makes everything easier to manage. You don’t need to keep track of as many monthly payments or accounts. For example, if you do five balance transfers, you go from five monthly payments to just one on your new balance transfer card.

Cons of Balance Transfer Credit Cards

Balance transfer cards have a few drawbacks you should know about before applying.

The interest rate increases after the introductory period

You could pay as little as 0% on your debt with a balance transfer card, but only during the intro period. After that, the interest rate goes up—probably quite a bit. Rates above 20% and even near 30% are common. If you’re interested in a specific card, you can check its rates in the terms and conditions.

For a balance transfer to be worth it, you need to make a big dent in your debt during the intro period. Once that ends, your card’s new interest rate could be just as much or higher than what you were paying before. Any transferred balance remaining on your card after the intro period ends will start accruing interest at the higher rate right away.

You may need good credit to qualify

The best balance transfer cards—meaning the ones with 0% intro rates—are generally aimed at people with good or excellent credit. A good credit score starts at 670 with the widely used FICO credit score model.

If your credit score is lower than that, you may have a tough time getting a balance transfer card. Even if you're approved at a lower score, you may not get a credit limit large enough to handle all the debt you want to move over. Your new balance transfer card needs a credit limit large enough to cover the balance transfer fee plus the debt you transfer.

Most cards charge a balance transfer fee

Credit card companies usually don’t transfer balances for free. They charge a balance transfer fee, most often 3% or 5% of the amount transferred. 

For instance, on $10,000 in balance transfers, you might pay $300 to $500 in transfer fees. Ideally, you save much more on interest than you pay in transfer fees, but do the math to see if that’s the case in your situation.

Balance transfers are hit or miss for paying off debt

Balance transfers work best if they’re paid off within the 0% interest period. That way, you’re free of debt before the rate hike. But a lot of people don’t manage this. About 40% to 60% of those who use balance transfers don’t pay off their balances within the intro period, according to Javelin Strategy & Research.

You could be in an even more difficult situation if you spent the whole intro period making only minimum payments. You’ve paid balance transfer fees, but you still have the debt, and the card issuer is now charging you a much higher interest rate on it.

Is a Balance Transfer Credit Card Right for You?

A balance transfer credit card could work well if you:

• Have good credit

• Are confident you can pay off your debt within the introductory period

If not, you may want to consider alternatives. A debt consolidation loan could be a better choice if you’re not sure you can pay off a balance transfer card quickly enough. Some debt consolidation loans have terms of five years or longer. Loans also typically have a fixed monthly payment. They’re not like balance transfer cards, which don’t have a fixed end date, and only require small minimum payments every month.

If you’re having trouble keeping up with your debt, debt settlement might be the solution. Debt settlement involves asking creditors to accept less than the full amount you owe, but consider it payment in full. You can negotiate with creditors yourself or enroll in a debt relief program and have a professional settlement company negotiate for you.

A balance transfer can help out when your debt is fairly manageable. For large amounts of debt, you may be better off with another approach.