Roughly four in 10 Americans carry credit card debt from month to month, according to a 2018 survey by the National Foundation for Credit Counseling (source). If you’re one of them and your goal is to be debt-free, not paying interest on what you owe is a great way to start.
That may sound too good to be true, but that’s exactly what balance transfer credit cards do. Depending on the card you get, you can get up to almost two years to focus on reducing your debt without paying interest. That could save you hundreds or even thousands of dollars.
What are balance transfer credit cards?
Most credit cards allow you to transfer a balance from another credit card. But balance transfer credit cards are specifically designed to help you pay off high-interest credit card debt.
These cards often offer low interest rates (as low as 0% APR) for a limited time on transferred debt. Their purpose is to consolidate debt and save you money on interest payments. The best balance transfer cards offer an introductory rate of 0% for periods upwards of 12 months.
What does 0% APR mean?
The first thing you need to understand about balance transfers is that a 0% APR does not mean a balance transfer is always free. Most balance credit cards charge a transfer fee that ranges from 3% to 5% of the debt balance. On a $15,000 debt—which is about the average credit card debt for an American household that carries a balance—that’s $450 to $750 in transfer fees.
How to use balance transfer credit cards?
Balance transfer cards have great teaser rates; it doesn’t get much better than 0% APR. The problem is once the introductory rate expires, their standard rates are often higher than those of your average credit card.
The secret is to either pay off your balance before the intro rate expires or transfer the pending balance to another 0% APR credit card. Set up a payment plan based on your goal to pay down debt and you’ll have a better chance of achieving it.
Also, consider switching to using cash or a debit card while you’re paying down your debt. If you continue using your old credit card, it’s easy to rack up more debt, making you feel like you’re spinning your wheels.
Another option is to pay your credit card debt with a low interest personal loan. You probably won’t find a personal loan with a 0% APR — unless you ask your mom for one. But personal loans do have the advantage of fixed monthly payments and a set payoff date.
Who qualifies for a balance transfer credit card?
Balance transfer cards are typically only available to people with good to excellent credit. The eligibility criteria differ from card to card, but credit card companies look for consumers with:
- A solid credit history.
- High credit scores.
- Stable income.
Should you do a balance transfer?
The idea of paying off your credit card debt without interest is an appealing one. But depending on your situation, it might not be the right choice.
It’s important to do the math to make sure a balance transfer will save you money. If you’re planning on using a big windfall to pay off your debt, for instance, you can avoid the balance transfer fees.
And if you’re just using a balance transfer card to move debt off your original card so you can rack up more, you’ll regret it. Think about the core reasons for your debt problem and address those before you get a balance transfer credit card.
Finally, keep in mind that a balance transfer can affect your credit. If, for example, transferring a balance maxes out your new card, it could cause a major drop in your credit score. That’s especially the case if your utilization rate was lower on your original card.
That effect is temporary and will diminish as you pay down the debt. But if you need to borrow again in the near future, it could make it difficult to get approved.
Which card should you choose?
The first step to determining which balance transfer credit card is best for you is to note which bank issued your current credit card. For example, if you have a balance on a Chase credit card, you can’t transfer it to the Chase Slate. Credit card issuers offer these benefits to gain new customers. So it doesn’t make sense for your bank to offer you a break on interest if it’s already making money off you.
Second, consider your other needs and preferences. For instance, if you want to minimize fees and earn rewards as you pay off your debt, choose a card with no annual fee and a decent rewards program, such as the Amex EveryDay credit card. However, if you want a longer balance transfer promotion, Citi’s Simplicity Card and the U.S. Bank Visa Platinum will do it for you.
Take a look at your top priorities—whether it’s a long promotion, a card with rewards, or no balance transfer fee—and base your decision on that. Because of these subjective factors, there’s no best balance transfer card for everyone.
Third, invest some time in comparing the balance transfer credit cards available. You may be leaving money on the table if you just go with the last credit card offer you received in the mail.
SuperMoney’s comparison tools make it easy to find the best balance transfer credit card for you. Take five minutes to see which card suits your lifestyle.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.