Balance Transfers: Pros, Cons & Tips to Reduce Debt

A balance transfer allows you to consolidate your debts to a single account, often a credit card, and benefit from a lower interest rate. This can help you save money on interest payments. However, note that the lower interest rate is usually an introductory offer that lasts for a limited time, generally between six and 18 months.

One of the best advantages of a balance transfer is a low introductory interest rate. Typically, this promotional offer features 0% APR, giving cardholders the chance to skirt around interest charges for a set period. Because you're saving on interest, more of your payment goes towards the principal, making it faster to pay off your debt.

The biggest obstacle to watch out for is accumulating more debt. If you don't pay your balance in full at the end of the introductory period, you'll incur higher interest charges on the remaining amount. You might also rack up new debt on your old card and on your new balance transfer card. In short, use a balance transfer card to get out of debt, not to finance further debt.

Balance transfers can work wonders if you take advantage of its benefits, which include the following:

Balance transfers are a good strategy for managing debt, but remember that, like any debt management strategy, they also have disadvantages.

How much you can save  with a balance transfer depends on the balance you carry, the interest rate of your old card, the balance transfer fee and the monthly payment you'll make. For example, you have a $5,000 balance on an 18.99% credit card, and you transferred it to a credit card that offers a 0% introductory APR for 18 months. With a 3% balance transfer fee and a $300 monthly payment, you'll save about $700. The amount you save is the interest charge of the old card minus the balance transfer fee. This balance transfer calculator can help you determine specifics.

But if you continue to accumulate charges on your old card after the transfer or start piling up expenses on the new one, you may find yourself sinking deeper into debt. Additionally, if you're unable to pay off the transferred amount before the introductory period ends, you could be hit with a higher interest rate on the remaining balance.

Many card issuers offer balance transfers, but the best balance transfer credit cards have the following features:

You can also get balance transfer cards that offer additional benefits like earning cash back or points, or a zero percent introductory APR on new purchases. This is great if you intend to use the card for everyday expenses or if you're anticipating a large purchase.

A balance transfer could be a strategic financial move if used wisely. First, assess whether it aligns with your financial situation and goals before moving forward. Here are some considerations to help you decide:

Balance transfers can be a great tool for managing credit card debt, but they aren't the only option. It's important to consider all your choices and find the best strategy for your unique financial situation. Here are some potential alternatives:

When it comes to balance transfers, we understand that you may have a few questions. That’s why we answered some of the most common queries to help you navigate your financial decisions.