6 Min Read | Published: August 5, 2024
Is a Balance Transfer a Good Idea?
A balance transfer could help you save on interest. However, if you don’t have good credit, or know you’ll struggle with payments, it may not be a good option.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
A balance transfer can allow you to move high-interest debt to a card with a lower interest rate (or 0% introductory offer), which could result in significant savings over time.
A balance transfer may make sense if you get approved for the right credit card and have a plan to repay the debt you transfer before the promotional period ends.
You might want to explore other debt-relief options if you can’t secure a card with a lower rate than what you’re paying on your current card or know it will tempt you to get into more debt.
With a balance transfer, you transfer high-interest debt from one credit card to another, ideally one with a lower interest rate, or a 0% Annual Percentage Rate (APR) introductory offer. This strategy can be an appealing option if you’re looking to consolidate debt or save on interest payments. However, before you move forward with a balance transfer, you’ll want to keep in mind that balance transfers may not be the right choice for everyone. In this article, we’ll take a look at the benefits of balance transfers, along with potential risks, helping you to determine whether a balance transfer is the right move for you.
When Is a Balance Transfer a Good Idea?
Whether or not a balance transfer is a good idea will depend on your needs and financial situation. It also depends on whether you’re able to secure the right credit card. Here’s a look at some situations where a balance transfer could make sense:
- If You Can Qualify for the Right Credit Card
One of the most noteworthy benefits of a balance transfer is that you can move your debt to another card with a lower interest rate. Some balance transfer cards come with a 0% APR introductory offer, which may be anywhere from six months to 18 months.1 If you can get approved for a credit card that has a 0% intro offer, a balance transfer may be a good option.2
- If You Can Pay Off the Balance
A balance transfer can be a good option if you’re able to pay the balance off, or at least greatly reduce it, by the end of the introductory period. If not, you may end up having to pay the card’s regular interest rate, which could end up being higher than what you’re currently paying. For this reason, you’ll want to check the regular APR of the card in question so you know what you’ll be charged if you’re unable to pay the balance off in time.
- If You Won’t Be Adding Debt
To reap the benefits of a balance transfer, you must be disciplined in your spending habits. You should only pursue this strategy if you know you won’t end up adding to the debt as you pay off your balance.3
You’ll also want to note that a balance transfer doesn’t mean that you can defer payments for the introductory period, you’ll still need to make at least the minimum payment each month by the due date. On top of that, you’ll also want to budget in additional payments so that you can pay the balance off.
When to Avoid Balance Transfers
While balance transfers can be a useful tool for paying off debt, they aren’t for everyone. If you know you’ll struggle to make payments, or can’t qualify for the right balance transfer card, then it may be best to hold off on doing a balance transfer.
- If You Don’t Have Strong Credit
If you have bad credit, you may not be a good candidate for a balance transfer. You may need to have good credit in order to get approved for a balance transfer card.4
- If You’ll Struggle to Make Payments
Once you transfer your balance to a new card, you’ll need to stick to a payment plan and make at least the minimum payment on time each month. If you don’t make payments on time, you could end up with penalties and a higher interest rate.
- You’ll Spend More on the New Card
The point of the balance transfer card is to help you pay off your balance during the introductory period, helping you to save on interest. If you know that you’ll end up using the new credit card for additional purchases and carrying a balance from month to month, then you’ll want to hold off getting a balance transfer card.
Choosing the Right Balance Transfer Card
If you decide that you want to use a balance transfer card to pay back your debt, keep these factors in mind as you shop for the right one.
- Length of Promotional Period
Ideally, you’d choose a credit card with a low or 0% introductory APR. A card that extends this offer to a period of 12 to 18 months is your best bet.5 This will give you plenty of time to repay your balance at a 0% or low APR and save as much as possible on interest.
- Regular APR After the Promotional Period
Be sure to review the ongoing APR that will apply once the introductory period ends. Keep in mind that a strong credit score may help you to qualify for a lower APR, which will kick in after the promotional period.6 This is important if you anticipate carrying a balance past the promotional period.
- Balance Transfer Fees
You’ll also want to take into account balance transfer fees, which could range from 3% to 5% of the amount you’re transferring.7 You’ll want to factor these costs in to make sure it still makes financial sense.8
- Credit Card Annual Fee and Features
While typically, you won’t be able to earn rewards for balance transfers, you may want to consider other benefits and features that the credit card offers. For example, some credit cards may allow you to split up purchases into manageable payments. Others may allow you to earn rewards on purchases. This is something to keep in mind if you’re planning to use the card again once you’ve paid the balance off.
- How Much You’d Like to Transfer
Check the credit limit of the new card to see if it can accommodate the amount of debt you plan to move. Additionally, read the terms and conditions because some cards restrict the transferable amount, even if your credit limit is higher.9
Did you know?
If you're looking for a balance transfer credit card, you may want to consider the Blue Cash Preferred® Card from American Express. Card Members can request a Balance Transfer within the first 60 days of account opening. Fees apply.10
Alternatives to Balance Transfers
As we’ve seen, balance transfers may not be right for everyone. You’ll also want to consider alternatives such as:
- Cutting Expenses
Look for ways to cut down on your personal expenses. You can use the money that you save to pay off debt.
- Consider Earning Additional Income
There are a number of different ways to earn additional income today, such as taking on extra work to selling unwanted belongings. These extra funds can be used to pay down debt.
- Take Out a Personal Loan
A personal loan may offer a higher line of credit with a reasonable interest rate.
Frequently Asked Questions
Two drawbacks of balance transfer cards are balance transfer fees and the risk of higher debt if you add to the balance. After the introductory period is up, the card’s regular APR will apply, so it’s advisable to work to pay off the debt during the introductory period to save as much as possible.11
Most balance transfer cards charge balance transfer fees, however, there may be some cards that don’t charge them.12
If you have a substantial balance on a high-interest credit card, moving your balance to a balance transfer card could be a good idea. This is particularly true if you get approved for a card with a 0% APR introductory rate and you have a plan to pay down the balance during the introductory period.
The Takeaway
A balance transfer can give you the chance to save money on interest. However, if you can’t get approved for the right balance transfer card, or if you know you will struggle to make on-time payments, you may want to explore other debt-relief options.
1,8 “How Credit Card Balance Transfers Work,” Investopedia
2,5,6,9,11 “Balance Transfers: Pros, Cons & Tips to Reduce Debt,” MoneyGeek
3,4 “Should I Complete a Balance Transfer?,” Experian
7 “How To Transfer A Credit Card Balance In 8 Steps,” Forbes
10 For more on Offer & Benefit Terms for the Blue Cash Preferred® Card, click here.
12 “Best Balance Transfer Card with No Balance Transfer Fees,” Bankrate
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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