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Is a Credit Card Balance Transfer a Good Idea or Not Worth It?
Credit card debt may be a nuisance to your wallet and your credit score, especially if the interest on the card is high. If you’re weighing your options for paying down your credit card debt, you may have considered a balance transfer to a lower-interest credit card. But whether a credit card balance transfer is the right decision for you depends on many factors, from your existing credit card balance to the fee for transferring a balance, and more.
What is a credit card balance transfer?
A credit card balance transfer lets you transfer part or all of your balances from one or more credit cards to another. Credit card companies may give you a balance transfer offer, such as a low or 0% intro annual percentage rate (APR) on the balances that you transfer to the card for a limited time after account opening. If you don’t repay your balance within the low APR period, your balance should begin accruing interest.
Using a promotional interest rate offer may help you save money and pay off your debt faster if you transfer high-interest debt. But you’ll want to compare how much you can save to any potential fees and consider how you’ll manage your cards once the transfer is complete.
Do balance transfers affect your credit score?
A credit card balance transfer may affect your credit score in a few different ways.
You may see a dip in your credit score shortly after you apply for a balance transfer credit card offer, as a new card usually comes with a hard inquiry. But a credit card balance transfer may improve your credit score in the longer term if it helps you manage your debt.
If you open a new card without closing your old account, your available credit should increase. This may decrease your credit utilization, improving your score. As you continue paying down your transferred balance, your credit utilization should continue to shrink (as long as you don’t increase your spending).
A balance transfer may hurt your score if you fall behind on payments. Typically, a balance transfer credit card offer has a lower interest rate in the months after account opening. If you don’t repay your balance before the low APR period ends, you may end up with more debt, which could hurt your credit score.
Pros and cons of balance transfers
Consider the advantages and disadvantages of using a balance transfer before applying for a new credit card or requesting a transfer.
Pros
Here are some reasons why you might consider a balance transfer credit card offer:
- Save on interest. Moving debt to a card that has a promotional low or 0% APR offer may save you money.
- Pay down debt faster. Because of your interest savings, a larger portion of your payments can go toward the principal balance if you transfer high-interest debt. As a result, you could pay down your debt faster, even if you’re making the same monthly payments.
- Lower your monthly payment. If your credit card has a high APR, you may find yourself making bigger and bigger payments without much progress in repaying your balance. A low introductory APR balance transfer credit card offer may lower your monthly payments because you won’t owe as much toward interest. However, it’s usually still a good idea to pay more than the monthly minimum.
Cons
Consider the following disadvantages before you initiate a balance transfer:
- There may be a fee. You may have to pay a balance transfer fee for any credit card balance transfers. The fee varies across credit card companies and offers, but it’s often around 3% or 5% of the amount you transfer, with a $5-$10 minimum.
- The intro APR rate is temporary. A new balance transfer credit card’s low or 0% APR intro offer lasts only for the limited promotional period as stated in the terms. After the promotional period ends, any remaining balance should start to accrue interest at the card’s standard APR.
- APR offers don’t always apply to purchases. If the promotional APR only applies to your transferred balance and not new transactions, your purchases may start to accrue interest immediately.
- Limits on transfer options. You generally can’t transfer balances between two cards from the same credit card provider. If you want to stick to one credit card company, a balance transfer may not be an option.
- You may need good credit to qualify. You typically need a strong credit score to qualify for a balance transfer. If you’ve historically struggled to stay on top of your payments, a balance transfer card may not be an effective debt relief option for you.
When is a balance transfer worth it?
Sometimes, a balance transfer card offer is the right tool for managing high balances. In the following scenarios, you may want to consider credit card balance transfers.
Interest savings are more than the balance transfer fee
Many credit card issuers charge a fee for credit card balance transfers. However, depending on the specific balance transfer credit card offer, interest savings may offset fees. If you think a balance transfer might be a good choice, take the time to compare the length of promotional periods, APRs, and balance transfer fees to find the best credit card balance transfer card offer for you. Keep your current balances in mind, too.
Sometimes the math might be surprising. For example, an offer with no balance transfer fee and a low interest rate might wind up saving you more money than an offer with a balance transfer fee and 0% APR.
Credit Card Balance Transfer Calculator
Easily calculate your potential savings with a Discover ® balance transfer offer. Simply enter your current balances (totaling up to ), APRs, and how much you pay each month.
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