complete guide to choosing balance transfer credit cards

Understanding Balance Transfer Credit Cards: Complete Guide

If you carry a balance on your credit card, a balance transfer can be a great way to save hundreds on interest charges and give yourself the opportunity to pay down your balance. Many credit cards out there offer balance transfer promotions with 0% interest for 6-12 months, although there are some things you definitely need to know to use this strategy effectively.

Here is our complete guide with everything you need to know about balance transfers, updated for 2015!

Our top recommended balance transfer cards can be found in this article.

Benefits of a Balance Transfer

There are quite a few benefits to doing a balance transfer, including:
1. Consolidating your debt. If you have many credit cards with a balance right now, a balance transfer allows you to combine all of the debt onto a single credit card with a lower minimum payment and, most likely, a lower interest rate. This can help you pay off your balance much faster, even if you continue to make minimum payments.
2. Improve your credit score. Carrying a balance on many cards is worse on your credit than having a single card with a balance. If you combine all of your debt onto a single credit card you’ll be left with a number of cards with no balance at all.
3. 0% intro APR. Many credit cards offer a great deal on balance transfers, giving you a 0% interest rate for somewhere between 6 and 12 months on your transferred balance. This gives you the chance to pay down your balance or even pay it off completely before the promotional period ends.
4. Lower minimum payment. If you’re carrying a high balance on many cards, you’re probably struggling just to make the various minimum payments. Combining these balances on a single card with a balance transfer will give you a single, lower payment to worry about.
5. Save more money overall. Balance transfers can save you thousands of dollars, as most have a 0% introductory period.

We currently recommend the new Discover it Card for balance transfers. Discover it makes it easy to set up a balance transfer after you apply. Simply hit the “Request Balance transfer” button (pictured below) on the main Discover site.

balance transfer credit card recommendations

When To Consider a Balance Transfer

A balance transfer isn’t always the right choice, and sometimes it isn’t even possible. You usually need good credit to qualify for a balance transfer credit card in the first place. This can be an excellent choice if you have multiple credit cards with a balance that carry high interest rates and want to consolidate these debts on a single card with better terms.

If you’re having trouble making multiple minimum payments, transferring your balance can alleviate this problem a great deal. A balance transfer is also a good option if you have a high balance on a single credit card with a high interest rate that’s going to take 5, 10 or 20 years to pay off with minimum payments. By transferring this balance you can probably pay off your debt in less than 2 years and save thousands of dollars in the long run. Transferring your balance is most likely not a good idea if you’re going to continue to increase your debt on your new card, or you’re simply trying to delay paying the debt as long as possible.

Example of a Great Balance Transfer

To help demonstrate the advantages of a balance transfer, here’s an example. John has two credit cards with balances: Card A has a balance of $2,500 at 26.99% and Card B has a $1,000 balance at 24.99%. The minimum monthly payments for these two cards is $111. John finds a credit card that offers balance transfers with a 2% fee and a 0% introductory APR for 12 months, with a 17.99% APR thereafter.

After transferring his combined balance of $3,500 to his new card and paying the $70 transfer fee, John now enjoys a $35 minimum payment. If John continues to pay the $111 he was paying previously, his balance will be paid in full in 36 months. He will pay a total of $414 in interest and fees.

Without transferring his balance he would take 222 months to pay off Card A with $4,920 in interest payments and 127 months to pay off Card B with $1,402 spent in interest.

Important Terms to Understand

There are two terms you must understand before considering a balance transfer.

The first is the balance transfer introductory APR. Most credit cards will offer promotional terms on balance transfers with a 0% APR for 6 to 12 months. This means you will be charged no interest on your transferred balance for the promotional period, although a regular APR will take effect as soon as the promo period ends. It’s important to either pay your balance in full before this introductory APR expires or choose a card with a regular APR that’s lower than your existing credit cards.

The second term to know is a balance transfer fee. While some credit cards allow you to transfer your balance with absolutely no fees, most charge a minimum fee and a percentage of your transferred balance. This minimum fee is usually between 1% and 4%, so a transfer of $4,000 to your new credit card will be assessed a fee between $40 and $160.

How To Locate a Good Deal

When you start shopping for a balance transfer credit card, make sure you read the fine print. Understand whether the balance transfer fee has a cap, and aim for a card that caps the fee at $50 or $75. Check whether the 0% introductory offer applies only to balance transfers or purchases as well. Don’t take the first card you find with a 0% balance transfer promotion because the card’s other features are important as well.
guide to making a balance transfer
The Discover it Card is currently offering a 0% intro APR for 14 months on balance transfers.

Important Factors: Is there an annual fee for the card? Does it offer rewards? Is the regular interest rate too high? (Usually it’s not a good idea to make new purchases with a BT card, but more on that below) Compare the various fees, APRs and the payment policies on every card you’re considering to get the best deal and pay off your debt as soon as possible.

Additional Tips for Success

Use a balance transfer calculator to see how much you’ll save when you transfer your balance. Bankrate offers an excellent calculator that allows you to input all of your current credit cards with balances, interest rates and annual fees, as well as the new card’s balance transfer fee, annual fee, interest rate and promotional period. The calculator will tell you how much interest you’ll pay in total whether you make the new minimum payment or your old minimum payments.

VERY IMPORTANT: As soon as your transfer your balance, make a note on your calendar on the date your promotional period ends so you can plan to transfer the balance again or pay the balance off completely.
Also, don’t make purchases with your new card! Most credit cards will apply payments to balances with the highest interest rate. If you transfer a balance with a 0% introductory APR and then make a $400 purchase with a 21.99% interest rate, all payments will be applied to the balance transfer until it’s paid off and that $400 will continue to accrue interest.

Pay More Than the Minimum

Take advantage of the promotional period to pay down your debt as much as possible and resist the urge to pay the minimum, which is likely much lower than you’ve been paying. Once the standard rate takes effect, those minimum payments can leave you with debt for years. Remember balance transfers aren’t a long term solution and won’t help you avoid paying off your balance. Instead, consider the balance transfer card a short-term way to lower your debt and save money, and pay more than the required minimum.

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