Balance Transfer Credit Card: What It Is & How It Works

Jason Steele

Updated January 18, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Credit cards are so easy to use, which may be why people tend to spend more than they can afford to comfortably pay back. And unfortunately, one of the most difficult challenges that credit card users can face is getting out of debt. Of all of the tools and strategies you can use to pay off your credit card debt, a balance transfer card can be among the most effective.Read on to learn more about what a balance transfer credit card is and how to transfer credit card balance if you use one.

What Is a Balance Transfer Credit Card?

A balance transfer credit card is one that offers a promotional financing interest rate that’s valid for balances transferred to the new account. The promotional financing rate is typically 0% APR, but some cards will offer a rate that’s lower than the standard rate, but more than 0%. In general, you need good or excellent credit to qualify for most balance transfer credit cards.

How Do Balance Transfer Credit Cards Work?

Wondering what a credit card balance transfer is exactly? When you apply for a credit card and open a new account with a balance transfer credit card, you can transfer the balance from an existing credit card account to the new account. The credit card issuer that you’re transferring the balance to will make a payment to the credit card account that you are transferring the balance from. That new balance, and any fees charged, will be added to your balance transfer card. Even if the balance transfer credit card has a 0% APR financing rate, you’ll still have to pay at least the minimum payment amount each month by the due date. And once the promotional financing rate expires, the standard interest rate will apply to any remaining balance. Many of these offers with 0% APR promotional financing are thought of as zero interest credit cards, and they require you to complete qualifying transfers within a limited time, such as 60 days after account opening. Additionally, you’ll usually need to pay off the balance on your card before the promotional period ends in order to avoid incurring interest on the balance. The length of promotions varies, but they must be at least at least six months, though they can be as long as 18 months.And just note that you can’t transfer a balance between credit card accounts with the same institution, as balance transfers exist to help card issuers acquire new customers.So, for instance, say you have outstanding credit card debt totalling $2,000. In order to use a balance transfer credit card to pay off that debt, you’d first apply for a balance transfer card and then, upon approval, transfer that $2,000 balance over to your new card. Once the balance — plus the balance transfer fee — is added to your new card, you’ll start making payments, ideally paying off your total debt before the promotional period ends and interest kicks in.

How to Transfer a Credit Card Balance

Once you’re approved for a new account with a balance transfer credit card, you can initiate the transfer. In fact, some card issuers allow you to request the transfer online as soon as your application is approved for the new account. You can also request a balance transfer by calling the card issuer’s customer service line and in many cases, you can make balance transfer requests online.It can take a few days to complete the balance transfer. During that time, you should always continue to make payments on the account from which you are transferring the balance until you can verify that the transaction is complete.

Are There Any Balance Transfer Fees for Credit Cards?

Nearly all credit cards that offer 0% APR promotional financing on balance transfers will impose a balance transfer fee. What is a balance transfer fee on a credit card? These fees are typically 3% of the amount transferred, which is added to the new account’s balance. Some cards can have a balance transfer fee of as much as 5%.There have been some rare instances of 0% APR balance transfer credit cards that have had no balance transfer fee. There are also some cards that still offer no fee balance transfers, but only for transfers at the standard interest rate for purchases. Paying this nominal fee can be worth it for the chance to save many months of interest charges at the standard rate.

Pros and Cons of a Balance Transfer Credit Card

As attractive as balance transfer credit cards can seem, they aren’t without their drawbacks.

Should I Get a Balance Transfer Card?

A balance transfer credit card can be a great tool to pay off your credit card debt, but it isn't’ for everyone. Opening up a new credit card account may be a good idea for those who know how to use a balance transfer credit card. This means people who have good or excellent credit and are able to manage an additional account responsibly. Before getting a balance transfer card, make sure you fully understand how credit cards work, and that you can reliably pay your bills on-time and won’t use an additional line of credit to incur debt.Promotional financing offers are also excellent for people who have the discipline to use them to permanently retire their credit card debt. For example, it can make sense to divide the total amount of your balance transfer by the number of months that the promotional rate applies. Then, pay that amount each month to pay off your balance before the promotional rate ends. On the other hand, a balance transfer credit card won’t work for people who don’t have good, or preferably excellent, credit. Without sufficient credit, you may not be approved for a balance transfer credit card. Or, you may just be approved for one with a very limited line of credit that won’t be very helpful. And if you’re about to pay off your outstanding balances within the next few months, it might not be worth it to apply for a balance transfer credit card. That’s because the cost of the balance transfer fee may exceed the amount of interest you would pay in the month or two that it would take to pay off your balances on your current accounts.

Things to Consider When Choosing a Balance Transfer Credit Card

There are dozens of balance transfer credit cards offered by major issuers. And just like choosing any other credit card, you should carefully consider each card’s features and benefits. For example, you should look at the fees charged by the card. Most cards will impose a 3% balance transfer fee, which has been pretty standard for many years. However, some cards charge a 5% balance transfer fee, which is higher than average. Thankfully, most balance transfer credit cards don’t have an annual fee.

Credit Card APR

The most important feature of a balance transfer credit card is its interest rate and the duration that it applies. Most balance transfer credit cards have a 0% APR promotional financing rate, but they differ in how long that rate applies. By law, promotional financing offers must last at least six months, but the most competitive balance transfer cards typically offer 15 to 18 months of interest-free financing, and sometimes even more. And if you plan on using the card after its promotional financing offer ends, then it also can be worth considering the card’s standard interest rate. Most cards now offer a range of standard interest rates, and the rate you receive will be based on your creditworthiness at the time you apply. Nevertheless, you’re likely to receive a lower rate from a card that offers a range of rates that are lower than its competitors.

Affect Balance Transfer Has on Your Credit Score

Opening up a balance transfer card and performing a transfer can affect your credit score, but not by much. By itself, opening a new credit card account can have a slightly negative effect on your credit score, but only when you’ve already opened up several new cards. But in the long run, having another account, and managing it responsibly, will add positive information to your credit history and can improve your credit score. And since opening a new account will result in a higher credit limit, your debt-to-credit ratio will be reduced, which can help your score. That’s also true because performing a balance transfer won’t result in a higher total amount of debt.

Balance Transfer Cards for Fair Credit

Banks don’t want to offer interest-free promotional financing to customers who don’t have good or excellent credit. That leaves very few options for those who want a balance transfer credit card, but only have fair credit. These options can include fair credit cards offered by some credit unions. There are also credit cards for those who have fair credit that offer balance transfers, but not at 0% APR. These cards may offer balance transfer, but only apply the standard APR. This can be useful if the card’s standard APR is less than what your current card offers, or if your goal is simply to consolidate your debts.

Compare Credit Card Offers With Lantern

A balance transfer credit card can be a powerful tool to help you to pay down, or pay off, your credit card debt. By understanding how these offers work, you can find the right card for your needs. Lantern by SoFi makes it easy to compare credit cards so you can see how your options stack up.

Photo credit: iStock/gpointstudioThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC112187

About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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