Credit card balance transfers can be a gift or a nightmare, and it all depends on a couple factors. First, you have to determine whether it makes financial sense for you to transfer the balance. Second, you have to choose the right card for you and your debt situation. Finally, you have to develop a sustainable repayment plan.
At best, a balance transfer allows you to repay your debt faster, saves you a significant amount of money, and boosts your credit score. However, it can also cause your credit score to drop and dig you deeper into debt.
Here’s what you need to know about credit card balance transfers before deciding to do one.
It is when you transfer outstanding debt from one credit card to a new one, typically provided by a different bank or credit card issuer. Balance transfers can be a strategy for paying off debt faster if you transfer to a card with a promotional interest rate. Like cashback or rewards cards, there are credit cards designed specifically to help you get the most out of your balance transfer. Popular ones include the Wells Fargo Platinum Card, US Bank Visa Platinum Card, and several offered by Citibank.
The APR on balance transfers, which is very low or 0%, is usually an introductory rate, meaning that after a certain amount of time the interest rate will increase. The introductory period often lasts anywhere from 6-18 months.
Issuers typically require you to have a good or excellent credit score — this is a 670-850 FICO score — in order to qualify for a balance transfer.
Banks and credit card issuers continually reach out to potential customers about promotional credit card offers. These promotional offers can include incredibly low interest rates on balance transfers and purchases, points, or cashback. An example offer could look something like zero interest for 18 months on purchases and qualifying balance transfers.
To take advantage of promotional offers on balance transfers, there are a few steps you should follow.
If used correctly, balance transfers are meant to cut down on the amount of money that goes toward both your principal balance and interest, but there are still inherent costs associated with a transfer.
Issuers often charge a fee, which is about 3-5% of the amount of each transfer. According to Cushion’s analysis of more than 130,000 balance transfers, the average balance transfer fee is $112.32. However, you can find fee-free balance transfer credit cards.
You should also take the card’s interest rate into account. While issuers run promotions for low or 0 interest, those interest rates will increase after the introductory period; if the post-introductory APR is higher than the rate that you paid before the transfer, you could end up owing even more.
Provide cushion when estimating your repayment timeline. Things happen unexpectedly, so finding a card with a longer introductory period can be beneficial.
Cushion’s ⚛️ Fee Genius scans your accounts regularly, catches pesky fees, figures out what is negotiable, and more. We provide you with all of the “what” behind fee negotiation so you only have to figure out the “how” of negotiating your fees.
And if you want Cushion to negotiate your fees for you, well we’re sort of geniuses at that too. To date, we’ve refunded our customers more than $10 million in bank and credit card fees. If you’d like to opt into our 💭 Fee Negotiation add-on, just flip the switch during sign-up or in the Profile tab of your dashboard.
With the right card, balance transfers can enable you to pay off debt quicker while saving money in the process. With a lower or 0% interest rate, little to no money goes toward interest during the introductory period, so paying off debt is just a matter of chipping away at your principal amount.
Balance transfers can also be a good way to consolidate your debts if you have several credit cards, personal loans, student loans, or other debts. By consolidating, you streamline the time and resources normally spent repaying your debts through several different companies.
In the long run, a credit card balance transfer can boost your credit score. It decreases how much you owe and can improve your payment history and credit utilization.
If you have both credit card debt and student loan debt, now could be an ideal time for a balance transfer. With student loans in forbearance, interest is not currently accruing on federal student loans and you are not required to make payments until at least September 30, 2021.
For some, this money may need to go toward necessary expenses, such as rent, utilities, and groceries. But for others, this temporary extra cash can go toward paying down your credit card debt. If you do a balance transfer, your money will make a larger dent in your balance over the next several months.
A successful balance transfer requires careful planning and diligent payments. If you slip up, there could be serious financial consequences. While a balance transfer could aid your credit score eventually, your score will initially drop a few points due to the hard inquiry by the issuer.
With balance transfer cards that have promotional introductory APRs, you should pay attention to the increased rate after the initial period. It could be higher than your original rate, and if you fail to pay off your debt during the introductory period, you could end up paying more than you would have if you had kept your balance on the original card.
There is also a fee associated with balance transfers. Considering these fees are a percentage of the total amount that you are transferring, you could end up paying several hundred or even thousands of dollars to transfer a credit card balance. In the end, it may not be that beneficial to transfer a balance just based on how high of a fee you have to pay for it.
Balance transfers can be beneficial by allowing you to pay off your debt quicker and save hundreds or thousands of dollars in the process. But in order to transfer a credit card balance successfully, you have to be responsible, diligent, and wary of the negative consequences. Before transferring, take a look at your balance, the terms and conditions of the new credit card, and the downfalls associated with your new plan.
Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $11 million in bank and credit card fee refunds—and we’re just getting started.
*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.