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The Basics of Balance Transfer Credit Cards

August 04, 2020 · 9 minute read

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The Basics of Balance Transfer Credit Cards

In an ideal world, no one would ever carry a balance on their credit card. The best-case financial scenario would be paying your statement balance in full every month so that you didn’t risk accruing interest on your card.

Mounting credit card debt can sometimes feel impossible to get out from under. Emergencies come up, things happen, and sometimes it’s easiest to reach for a credit card to cover unexpected expenses. Yet when you carry debt on your credit card, even if you make the minimum payments each month, interest still accrues and adds to what you owe.

According to a 2019 survey by CNBC Make It and Morning Consult , about 45% of adults who have credit cards don’t have corresponding credit card debt, meaning that they use these cards for convenience’s sake and pay the balance off every month. However, sometimes life gets in the way of that and credit card debt begins to accumulate.

The problem is, when debt accumulates on a high-interest card, the interest quickly adds up as well, which makes it harder to pay off the total debt—which, in turn, can turn into a credit card debt spiral.

If you end up with mounting debt on a high-interest credit card, then a balance transfer credit card is one possible way to get out from under the interest payments, a strategy that comes with both pros and cons.

A balance transfer credit card allows you to transfer your existing credit card debt to a temporarily lower-interest or no-interest credit card. This can be the perfect opportunity to start paying down your debt with reduced interest rates (or no interest rate for a time) and get out of the red zone. But you have to be sure you pay attention to the fine print.

What Is a Balance Transfer Credit Card?

The basics of balance transfer credit cards are fairly straightforward: open a new lower-interest or no-interest credit card, transfer your balance from a high-interest card to the new card, and hopefully pay off the debt faster with better terms.

Generally, when selecting to do a balance transfer to a new credit card consumers will apply for a new card with a lower interest rate than they currently or a card with an introductory 0% APR.

This introductory period can last anywhere from six to 21 months, and varies by lender. By opening a new card that temporarily charges no interest, and then transferring your high interest credit card debt onto that card, you can save money because your balance temporarily no longer accrues interest charges as you pay it down.

But you need to hear one crucial warning: After the introductory interest-free or low-APR period ends, the interest rate generally jumps up. That means if you don’t pay your balance off during the introductory period, it will start to accrue interest charges again, and your balance will grow.

Paying off the debt may be easier without the high annual percentage rate (APR), because you should end up saving money by not paying interest.

A balance transfer credit card, practically speaking, is also the only way to pay off one credit card with another, since most credit cards won’t let you use a different credit card to make your monthly payments.

Why Would You Use a Balance Transfer Credit Card?

Generally, you need a solid credit history to qualify for a balance transfer credit card. If you qualify, you can use the balance transfer credit card to pay down your existing debt without incurring more interest charges.
So it’s a good idea, as long as you can, to pay off your debt before the introductory rate goes away.

Ideally, a balance transfer credit card would consolidate your debt so you’re paying off one card instead of multiple. If you’d rather avoid adding another credit card to your arsenal, another option is to use a lower-interest personal loan to consolidate your credit card debt.

One alternative to a
balance transfer credit card
is a personal loan with SoFi.


Using a Balance Transfer Credit Card

There are a number of different balance transfer credit cards out there. They vary in terms of no-interest introductory periods, credit limits, rewards, transfer fees, and APRs after the introductory period. You’ll want to shop around to see which card makes sense for you.

Once you qualify for and pick a balance transfer credit card, you can typically transfer your balance from store credit cards, gas cards, or any other credit cards onto the new card. You obviously cannot transfer more debt than your new card’s credit limit.

That means if you have more debt than the limit you’re being offered on the new card, you could end up with at least two credit card bills to pay off. You probably won’t know the credit limit you’ll receive until after you’re approved, unfortunately, which can make it more challenging for planning purposes.

Even when you can request a certain amount, it’s the card issuer who makes the final credit limit determination.
After you’re approved, the balance transfer credit card company will contact your existing debt holders and transfer the balances.

This typically takes one to two weeks (but could even take as long as three); if you have any payments due in that period, you should make them so as not to incur missed payment penalties.

Once you transfer your debt, your old card will have a zero balance, but it still will not be closed unless you choose to close it. (There can be credit consequences for closing accounts, so be sure to do your research.)

Pros and Cons of a Balance Transfer Credit Cards

Sometimes, transferring your outstanding credit card balances to a no-interest or low-interest card makes good sense. For example, let’s say that you know you’re getting a bonus or tax refund soon, so you feel confident that you can pay off that debt within the introductory period on a balance transfer credit card.

Or, maybe you know that you need to put a larger purchase or repair on a credit card, but you’ve included those payments into your budget in a way that should ensure you can pay off that debt within the no-interest period on your balance transfer card. Again, depending upon the card terms, and your personal goals, this move could prove to be logical and budget savvy.

Having said that, plans don’t always work out as anticipated. Bonuses and refund checks can get delayed, and unexpected expenses can throw off your budget.

If that happens, and you don’t pay off your outstanding balance on the balance transfer card within the introductory period, the credit card will shift to its regular interest rate and APR, which could be even higher than the credit card you transferred from in the first place.

To make matters worse, if you end up paying interest on the entire amount that you transferred, this may end up being a more expensive deal—even if the interest rate on your original credit card(s) is the same as on the balance transfer card. That’s because you might also have needed to pay a balance transfer fee.

In fact, most balance transfer credit cards charge a balance transfer fee, typically around 3%—and sometimes as high as 5%. This can add up if you’re transferring a large amount of debt. Be sure to do the math on how much you’d be saving in interest payments compared to how much the balance transfer fee will cost.

For example, with a transfer balance of $10,000, your fee could range between $300 and $500! Note that some balance transfer credit cards also offer an introductory period without transfer fees and with 0% APR, so shop around.

Here are a couple of more things you may want to consider. If you’re thinking about choosing a no-interest credit card, read the fine print carefully because, sometimes, the zero percent clause only applies when you’re purchasing something new, not when transferring balances.

Plus, if you make a late payment, there may be another clause, one that instantly revokes the no-interest rate, perhaps raising yours to a penalty APR that could be as high as nearly 30%.

A common concern is whether opening a new balance transfer credit card will hurt your credit score. If you pay off the debt on the new card, however, and don’t incur additional unpaid debt, you may be able to avoid hurting your credit score in the long run.

But if you end up with debt on the card after your introductory rate has ended, and then start accruing interest, it can put you back into credit card debt, which may hurt your score. Additionally, if you close your old credit cards, that too can have an impact on your credit score, so research carefully to determine what’s best for your situation.

Before signing up for a balance transfer credit card, things to verify include whether transferring your balance will save you money, whether it’s likely you can pay your debt off during the introductory period, and whether closing old credit card accounts could impact your credit score.

Balance Transfer Card vs Personal Loan

Another option to pay off high-interest credit card debt is to use an unsecured personal loan. A balance transfer card transfers credit card debt onto a new credit card at a low or nonexistent interest rate—but the interest rate rises at the end of the introductory period.

A personal loan, however, can be used to consolidate a wider range of existing personal debt, credit card or otherwise. And you can choose a fixed interest rate, which means the interest rate you sign on for is the one you’ll have for the duration of the loan—it won’t go up.

You can usually take out a personal loan for a wide range of amounts. Depending on your credit, financial situation, and the state you live in (among other factors), interest rates, terms, and the amount you can borrow may vary.

The application process typically requires a credit check and a look at your financial history and current employment. If you’re approved, you can then use your personal loan to pay off your high-interest credit card debt.

Basically, you use the personal loan to pay off your credit cards, and then you just have to pay back your personal loan in (hopefully) manageable monthly installments. Personal loans will have one monthly payment but unlike credit cards, which typically come with variable interest rates, which can fluctuate based on a variety of factors, many unsecured personal loans offer fixed interest rates and fixed terms (usually anywhere from 1 to 7 years depending on the lender), which means they have a predetermined payoff date.

While your monthly payments will most likely be lower on a credit card, a personal loan can potentially allow you to pay much less interest on your debt, because (for those that qualify) most personal loans offer interest rates that are lower than most credit cards, which would save you money over the life of the loan.

Choosing Between a Balance Transfer Credit Card and Personal Loan

Both a personal loan and a balance transfer credit card essentially help you pay off existing credit card debt by consolidating what you owe into one place—ideally at better (or no!) interest rates. The difference comes in how each works and how much you’ll ultimately end up paying (and saving).

Balance transfer credit cards typically require a high credit score to qualify, which can be a challenge if your current credit card debt is affecting your credit score.

Some balance transfer credit cards offer an introductory period without transfer fees and with 0% APR, but you’ll want to do the math on how much you’ll save in interest versus how much you’ll pay in transfer fees.

For many people, a balance transfer credit card also comes with the additional concern of starting a new cycle of credit card debt. The whole idea of a balance transfer credit card is to get your debt onto a card with low or no interest so then you can start to pay it off faster—with as little interest as possible.

But, if you instead rack up more debt on this new card and don’t pay off the debt, it could potentially hurt your credit score, so it’s worth considering this option carefully if you feel you might be tempted to spend.

Additionally, if you fail to pay off the debt during the no-interest period, you could be back where you started; your balance will start to accrue compounding interest based on the new card’s APR.

With unsecured personal loans, however, you can usually choose to have a fixed interest rate that doesn’t balloon. You will agree to a repayment term with your lender, which could be up to a few years. Then, you’ll need to make your monthly payment to your loan servicer.

You’ll want to look out for fees with personal loans, too. While personal loans can come with origination fees and hidden fees, some personal loans don’t have origination fees or prepayment penalties—so it’s a good idea to do your research. Personal loans can also be used for personal expenses, which means you can consolidate other higher-interest debt by bundling it into the personal loan amount you request.

To find out how much you may be able to save, you can use our personal loan calculator to get a rough estimate.
Plus, with a personal loan from SoFi, you don’t need to worry about introductory interest rate periods or balance transfer fees.

SoFi offers fixed-rate personal loans, which means your interest rate won’t go up over the life of the loan, which can make it easier to budget in order to get out of challenging credit card debt cycles.

And there are no fees: No origination fees. No prepayment penalties, either, which could help in paying your loan down faster—or even off, at any time, if you so choose.

At SoFi, the goal is to help you to Get Your Money Right®. In fact, if you lose your job, SoFi offers a program that can temporarily pause personal loan payments for qualifying members. SoFi’s career services can even help you to find a job.

Looking for an alternative to another credit card? Consider a SoFi credit card consolidation loan to consolidate and pay off credit card debt.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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