How to use balance transfer to pay off debt

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If you have credit card debt, you’re not alone. 

The average credit card balance for consumers in 2021 was $5,525, according to credit bureau Experian. And with an average annual percentage rate (APR) of 17.13% on accounts assessed interest in 2021, according to data from the Federal Reserve, you may find it difficult to make quick progress paying down your balance. 

Balance transfer cards promise a way to pay off debt faster and save money at the same time, which is what makes them so appealing to individuals with credit card debt. If you qualify for a card with a 0% APR introductory offer, you could have months to pay off the balance without paying any interest, saving you money in the long run. 

But balance transfers can be a double-edged sword: without a plan in place to pay off the debt in a timely manner, you could end up racking up a balance on the new card and end up right back where you started — or worse off than before. 

If you’re trying to figure out if a balance transfer makes sense for you and how much it could save you on interest, here’s what you should know. 

What Is a Balance Transfer?

A balance transfer is a process where you move the outstanding balance from one credit card to another. Usually, balance transfers are done to consolidate debt into one account and to get a lower APR. 

“In some cases, you can get a better interest rate on a balance transfer,” says Todd Christensen, education manager with Debt Reduction Services, a non-profit credit counseling agency that serves consumers nationwide. “There may be a promotional rate, maybe at 0% for six months, nine months, or 12 months, with the idea that you’re going to pay down that debt faster with less interest,” he explains.

During the promotional period, the card will have a 0% APR. Once the promotional period ends, the regular APR will apply, and interest will accrue. 

While a balance transfer can help you save money while paying off your debt, since your monthly payments will be going entirely to your principal balance instead of interest, it doesn’t solve your debt problem. Transferring your credit card balance to a new card doesn’t address the root issue behind what caused you to get into debt in the first place; it just moves the balance around. Without a debt repayment plan in place, you risk potentially running up a balance on the new card and adding to your overall debt. 

Pro Tip

Whether you utilize a balance transfer or opt to make payments on your current cards, aim to pay more than the minimum required payment. Otherwise, it could take years — possibly decades — to get out of debt.

“What [people are] doing is they’re treating the symptom and not the cause of their debt,” says Christensen. “A balance transfer is just a debt shuffle, it is not a debt elimination plan.”

Should I Do a Balance Transfer?

Whether a balance transfer is worth it depends on the card offer, your credit, your existing debt and your commitment to paying off your debt in a timely manner — ideally before the introductory period ends. 

“If it’s someone with a high credit score with a $0 balance transfer fee and a 0% APR for a decent length of time, [a balance transfer] is not a bad thing!” says Kim Cole, community engagement manager with the national non-profit credit counseling agency Navicore Solutions. “It’s not something you want to do often,” she adds, “but you can use it to pay off your debt and save some money.”

Aside from crunching the numbers to see how much you could save on interest, you should also consider these factors when deciding whether a balance transfer is the right solution for your situation: 

Getting Approved for a 0% or Low APR Card

To qualify for a balance transfer credit card with a 0% APR offer, you typically need good to excellent credit. In general, that means you need a credit score of 670 or higher. If you have a credit score that is in the poor to fair range, you’re unlikely to qualify for a balance transfer with a promotional APR. And you won’t always find out if you’re eligible for a 0% APR offer without undergoing a full credit inquiry, according to Cole.

“What’s scary is that you don’t know whether or not you are going to qualify for the 0% until you apply,” she says. “So even though you may have received offers in the mail or offers in your email does not mean you’re going to be offered 0%. So what will happen is you’ll apply and they’ll come back with a high interest rate. Now you’re kind of in a bad position because you’ve now added a credit inquiry to your credit report,” she explains. 

Balance Transfer Fee

Before transferring your balance, check the card’s terms and fees. In general, there are fees for transferring your balance onto a card. 

“One of the things that people need to watch out for is balance transfer fees,” Cole said. “They may not be obvious, and will be sort of hidden in the fine print.”

The fee is usually charged as a percentage of the balance transferred, typically ranging from 3% to 5% of the balance. If you have a $5,000 balance you intend to transfer, a 5% balance transfer fee would cost you $250. 

Length of Promotional APR

The introductory APR on balance transfer cards has to stay in place for at least six months unless you’re more than 60 days late on a payment, according to the Consumer Finance Protection Bureau (CFPB). However, there are some cards that offer longer 0% APR terms, typically ranging from 18 to 21 months. The U.S. Bank Visa® Platinum Card, NextAdvisor’s top pick for balance transfer cards, offers customers 0% intro APR on balance transfers and new purchases for 18 billing cycles, 17.49% – 27.49% variable APR thereafter. 

Just keep in mind that you’ll lose the 0% APR if you are more than 60 days late on a payment. If that happens, the issuer can hike your rate, and the new APR will apply to the total balance on the card. 

Other Options for Consolidating Credit Card Debt

While a balance transfer can be an effective way to manage your debt, it’s not the only option. Consider these alternatives before making a decision: 

• Debt Consolidation Loan: A debt consolidation loan is a personal loan with a fixed interest rate and repayment term. You use the loan to pay off your existing debt, including your credit card balances, and repay the loan in monthly installments. Depending on the lender, you may be charged an origination fee that will be deducted from your loan funds. 
• Home Equity Loan or Line of Credit: With a home equity loan or home equity line of credit (HELOC), homeowners can use their home’s equity to borrow money and pay off their credit cards. Because these loans and lines of credit are secured by your house, you may be able to borrow more money and get a lower rate than you’d get with other forms of credit. However, you run the risk of foreclosure if you fall behind on payments. 
• Debt Management Plan: If you’re overwhelmed by your debt, you can work with a non-profit credit counseling agency to develop a debt management plan (DMP). Through a DMP, you work with a counselor to create an agreement with your creditors. You make one lump sum payment to the agency, and the agency distributes the funds to the creditors as agreed. Most people get out of debt with a DMP in three to five years. 

Calculating Your Least Expensive Option

Which option for managing your debt is the least expensive depends on the amount of debt you have, as well as your credit score and credit history (which will determine what sort of APRs you qualify for). 

In general, a balance transfer can be a more cost-effective strategy than a personal loan, particularly if you intend to pay off the balance quickly. If you can pay off your debt before the 0% APR period ends, you’ll essentially have gotten a loan with 0% interest. 

If you can’t pay off the entire balance during the introductory period, you’ll need to crunch the numbers more carefully using a loan calculator. Which option is the cheapest in the long run will depend on your exact balance, the APR you get, and any fees the credit card or loan company may charge. 

To demonstrate how much you can save with a balance transfer, consider this example:

You have a credit card with a current balance of $5,000 and a current APR of 17.13%. Your budget allows you to make monthly payments of $163. 

You qualify for a balance transfer card with an APR of 0% for 18 months and 17.13% thereafter, and a balance transfer fee of 3% of the balance. If you transfer your balance to the new card and keep your current monthly payment of $163, you’d be able to pay off the balance five months sooner and save $1,210 in total interest charges compared with keeping the balance on your current card. 

Let’s say you decided to use a debt consolidation loan instead and you qualified for a 36-month loan at 10.46% interest, the current average interest rate on personal loans according to Bankrate. You’d pay the same $163 per month, for a total of $5,847 over three years — so a debt consolidation loan would be more expensive than using a balance transfer.  

Choosing the Best Balance Transfer Card

A balance transfer can work well for people that are committed to repaying their debt in a timely manner and have the discipline to limit future purchases. If you think you can achieve that and are looking at your options, consider the following factors when evaluating potential credit cards: 

• Promotional APR: If you have good to excellent credit, you can likely qualify for a 0% APR card. However, applicants with less-than-stellar credit are unlikely to qualify for cards with a 0% introductory rate. 
• Length of Promotional Period: The length of the introductory offer varies by card. Depending on your credit and the card issuer, the promotional APR can last anywhere from six to 21 months. Look for a card with a promotional period of 18 months or longer to get the best value. 
• Balance Transfer Fee: Most card issuers charge a balance transfer fee. The fee usually ranges from 3% to 5% of the balance transfer amount. 
• Regular APR: Once the promotional period ends, the regular APR will apply to your balance and all new transactions. If you carry a balance, a high APR can cause more interest to accrue. 
• Annual Fees: Some credit cards charge annual fees, so you may have to pay money to keep the account open. 
• Rewards: With some balance transfer cards, the main appeal is the 0% APR for the introductory term. But some do offer ongoing rewards, such as cash back or points on certain purchases. 

If you’re looking for a new balance transfer card, these are three strong options: 

1. Citi Simplicity: Citi Simplicity® Card gives you 21 months at 0% intro APR. After that, a variable APR of 16.99% to 27.74% applies. It has an intro balance transfer fee of 3% of each transfer (minimum $5), whichever is greater for balance transfers completed within 4 months of account opening. There is no late payment fee or penalty APR. 
2. HSBC Gold Mastercard: With the HSBC Gold Mastercard® credit card, you’ll get 0% APR for 18 months. Once the introductory offer expires, a variable APR of 13.99% to 23.99% will apply. There is a balance transfer fee of $10 or 4%, whichever is greater, and balance transfers must be posted within 60 days of account opening. The card includes benefits like rental car coverage, travel accident insurance, and discounts on Mastercard Airport Concierge services. 
3. U.S. Bank Visa Platinum: If you complete a balance transfer with the U.S. Bank Visa® Platinum Card, you’ll get 0% intro APR for 18 billing cycles. After that, the variable APR of 17.49% to 27.49% will apply. There is no annual fee, and the card includes benefits like cell phone protection and free credit score access. 

For more options, check out our selections for the best balance transfer cards of 2021.

• Introductory balance transfer rate:

  0% for 21 months on Balance Transfers

• Annual fee:

  $0

• Regular APR:

  16.99% – 27.74% (Variable)

• Recommended credit:

  670-850 (Good to Excellent)

• Learn more externa link icon At our partner’s secure site

• Introductory balance transfer rate:

  0% Introductory APR on balance transfers for the first 18 months from account opening

• Annual fee:

  $0

• Regular APR:

  13.99% – 23.99% (Variable)

• Recommended credit:

  670-850 (Good to Excellent)

• Learn more externa link icon At our partner’s secure site See Rates & Fees, Terms Apply.

• Introductory balance transfer rate:

  0% for 18 billing cycles on balance transfers

• Annual fee:

  $0

• Regular APR:

  17.49% -27.49% (Variable)

• Recommended credit:

  670-850 (Good to Excellent)

• Learn more externa link icon At our partner’s secure site See Rates & Fees, Terms Apply.

Editorial Independence

As with all of our credit card reviews, our analysis is not influenced by any partnerships or advertising relationships.