The pros and cons of balance transfer credit cards - The Points Guy (2024)

FAQs

Is there a downside to balance transfer cards? ›

Downsides of balance transfer cards

Balance transfer credit cards often have a host of pitfalls that can potentially offset the benefits, including: Fees: Most credit cards have a 3% or 5% balance transfer fee. Temporary 0% APR: The 0% intro offer will eventually expire, and your regular APR may be 20% or higher.

A balance transfer can improve your credit over time as you work toward paying off your debt. But it can hurt your credit if you open several new cards, transfer your balance multiple times or add to your debt.

A balance transfer credit card may not save you money once the 0% introductory period ends because interest will start accumulating on any remaining balance. Another catch with balance transfer credit cards is that they are usually reserved for people with good credit or better.

A balance transfer can be a good way to consolidate debt or take advantage of a promotional interest rate. However, if you're considering a balance transfer to a rewards credit card, you may be disappointed to learn you won't earn rewards on the transferred balance.

After a balance transfer takes place, your old account remains open. The original card issuer will typically only close your account if you make a request for it to do so. Unless you have a good reason to cancel your old credit card, however, you may want to think twice before you close the account.

Card issuers typically have rules surrounding the amount of debt you can transfer in relation to your credit limit. Many issuers are generous, giving cardholders the ability to transfer their full credit limit, but in some cases, your transfer limit may be capped at 75 percent of your overall credit limit.

If you can keep your old account open with a low or zero balance, it will lower your credit utilization ratio and may boost your credit. Closing the account can have the opposite effect because it will reduce your overall credit limit.

Pros and cons of balance transfer

Pay less interest each month on what you currently owe – most balance transfers offer a lower interest rate (often 0%) for an introductory period. Some credit card providers offer rewards when you take out a balance transfer card, such as cashback or shopping discounts.

A Balance Transfer is when you transfer an existing balance on a credit or store card to another credit card provider. A Money Transfer is when you use a Credit Card transfer to move money from the Credit Card to a bank account.

Not taking into account the balance transfer fee

A balance transfer credit card can save money on interest, but it's not without cost. In most cases, the amount you move over will be subject to a balance transfer fee — typically 3% to 5% of the total amount transferred.

Why would I want a balance transfer credit card? ›

Credit card balance transfers are typically used by consumers who want to save money by moving high-interest credit card debt to another credit card with a lower interest rate. Balance transfer credit card offers typically come with an interest-free introductory period of six to 18 months, though some are longer.

Make sure your balance transfer is large enough to cover at least the minimum payment - if it does't you will have to make an additional payment to bring the total up to the required amount. A balance transfer that is received in time will always count as a payment towards your credit card account.

It may not be possible to get approved for a balance transfer card with bad credit. Card issuers typically require a good or excellent credit score to qualify, which is a FICO^® Score^☉ of 670 or higher on an 850-point scale. But there are other ways to strategically pay down credit card debt.

You may see a positive impact on your credit score if you transfer your balance to a single new card and take action to reduce your debt balances. But if you constantly open new credit cards and transfer balances, your credit score can actually drop.

You can avoid balance transfer fees by finding credit cards with no fees or introductory periods where no fees are charged. You'll have no transfer fees if you transfer your balance during the introductory period.

A balance transfer can reap maximum benefits in the initial years of the loan tenor provided you get the ideal tenor and interest rate. Thus, if you are given a longer tenor with lower EMIs, your interest payouts will increase considerably, raising the credit cost.

No, balance transfers do not increase your credit limit. You cannot transfer a balance that exceeds your account's credit limit, and issuers will either reject such a balance transfer request or accept only a partial transfer.

If you're thinking of doing the balance transfer in order to get points or to bring your spend up to the next tier for some kind of a loyalty scheme, check the details for your credit card - most will not count balance transfers towards these schemes and it's often a bad idea to pay the fees and interest of a balance ...