If you’re looking at several thousand dollars of debt and find yourself only making the minimum payments, a balance transfer could be a game-changer for your finances. Using a credit card balance transfer can be a good way to get out of a hole in months instead of years.
You can become a balance transfer candidate if you want to:
- Save money on interest payments
- Consolidate your debt across multiple credit cards
Honestly, you could save hundreds (even thousands) of dollars by opening a card with 0% APR. But you need to understand how balance transfers work before committing.
Let’s take a look at the balance transfers and credit card offers that are leading the league.
What is a balance transfer?
A balance transfer is essentially a way to pay from one credit card to another.
To be clear, this is not debt forgiveness in any form or form. You will still have the same amount of credit card debt as before, just on a different credit card.
This may sound completely pointless, but it is actually a strategy that can save you a significant amount of money in the long run. I’ll show you exactly how in a second.
Read more: How to pay off credit card debt quickly
How do balance transfers work?
It is important to understand how a balance transfer works because there are several ways to do it.
When someone initiates a balance transfer, they most often open a new credit card and would like to move the debt from the old card(s) to the new card. However, you do not need to open a new credit card to use this privilege. Many issuers allow you to request a balance transfer, sometimes even offering promotional terms that make potential customers very tempting.
Whatever your situation, the process is simple. There are several ways to make the ball move:
- Leave an application online. You can usually ask your card issuer to transfer the balance through your online account. You just need to provide them with account information as well as the amount you wish to transfer.
- Call your card issuer. If you prefer to speak to a person, you can call your card issuer instead. Be prepared to include both the account number of the balance you are trying to transfer, the card number you want to transfer the balance to, and the amount of debt you are transferring.
- Through mail. Sometimes your credit card will send you an email asking you to transfer your balance from another credit card in the form of a check. You can fill it out and send it back to effectively transfer the debt from another card.
- Request a balance transfer during the application process. If you are opening a new card for a debt transfer, you may sometimes be able to request a transfer before you click “send” on the card application.
Almost all credit cards will charge anywhere from 3% to 5% for the privilege of moving your debt.
What is a 0% balance transfer?
Many credit cards offer a low (or even no) starting interest rate as an incentive to apply.
The kings of balance transfer cards are those that offer 0% introductory APR. This allows you to transfer your balance and immediately stop the exorbitant interest payments banks charge you.
For example, let’s say you have a $4,000 card balance with 20% interest – and you only make the $95 minimum payment each month. At this rate, it will take you 73 months to pay off the balance. With interest, you end up paying almost $3,000.
Now suppose you open a card with a starting interest rate of 0% per annum for 21 months on balance transfers and a current annual interest rate of 16%. You can pay off your debt in 44 months with exactly the same payment amount and you will only pay a little over $900 in interest. That’s over $2,000 in interest savings just from opening a balance transfer card.
You can use our debt repayment calculator to find out when your credit card balance will be paid off at the current APR and minimum payment. Again, remember to take into account the fees associated with transferring your balance.
Read more: Best credit cards with 0% balance transfer
How much can be transferred?
You can transfer as much debt as your credit limit allows.
In other words, if the “target” card you wish to transfer your debt to has a $5,000 line of credit, you cannot transfer more than $5,000. Balance transfers don’t count as purchases, but they eat into your line of credit just the same.
There are some exceptions to this. In some rare cases, your “target” card may not allow you to make the most of your entire line of credit when transferring the balance. Card issuers may also limit the total amount you can transfer if you are over owed.
Here is a quick guide on how much you can transfer balances at leading banks:
- American Express – 75% of your credit limit or $5,000 (whichever is less)
- Capital One – Full credit limit (minus balance transfer fee)
- Chase – 95% of your credit limit or $15,000 (whichever is less)
- City – Full credit limit (minus balance transfer fee)
- Detect – 95% of your credit limit (to leave room for balance transfer fees)
What debt can be transferred?
The type of debt you can transfer to a new card depends on your credit card issuer.
Here are the forms of debt that every major bank accepts for balance transfers. It is worth noting that you cannot balance the transfer of any debt within the same bank. You must be transferring from another bank.
- American Express — Credit cards
- Capital One – Credit cards; personal loans; auto loans; student loans; home secured loan
- Chase – Credit cards
- City – Credit cards; personal loans; auto loans; student loans; home secured loan
- Detect – Credit cards; personal loans; auto loans; student loans; home secured loan
Some issuers may also allow the transfer of debts such as medical bills and payday loans.
bottom line
And now you know how to make a balance transfer!
If you use them wisely, they can be a great tool to get out of debt and save money on interest payments. The rules for what types of debt you can transfer to your card and how much debt you can transfer vary by credit card issuer.
One constant, however, is that you will not be able to transfer more debt than the line of credit available to you. If you’re thinking about opening a credit card with a low starting APR, make sure your credit history is in relatively good condition, otherwise you may find that your new card only offers a $1,000 line of credit. This won’t help much if you’re trying to consolidate credit card balances or save yourself draconian interest charges on a large chunk of debt.
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