Best Balance Transfers on Credit Cards: Managing credit card debt can be a daunting task, especially when high-interest rates make it challenging to pay down balances effectively. One viable solution to this problem is utilizing balance transfer credit cards.
This strategy allows you to move existing debt from one or more credit cards to a new card with a lower interest rate, often with an introductory 0% Annual Percentage Rate (APR) for a specified period.
By doing so, you can save on interest payments and pay off your debt more efficiently.
Understanding Balance Transfers
A balance transfer involves moving the outstanding balance from one or more credit cards to another card, typically one that offers a lower interest rate or a promotional 0% APR for a limited time. This financial maneuver aims to reduce the amount of interest you pay, allowing more of your payments to go toward the principal balance. It’s essential to understand that while balance transfers can provide significant savings, they often come with fees and require disciplined repayment strategies to maximize their benefits.
Key Features to Consider in Balance Transfer Credit Cards
When evaluating balance transfer credit cards, several critical features should be considered:
- Introductory APR Periods: Many balance transfer cards offer a 0% APR for an introductory period, ranging from 12 to 21 months. This feature allows you to pay down your balance without accruing additional interest during this timeframe.
- Balance Transfer Fees: Most cards charge a fee for transferring a balance, typically between 3% to 5% of the amount transferred. It’s crucial to calculate whether the interest savings offset this upfront cost.
- Regular APR After the Introductory Period: Once the promotional period ends, the standard APR applies to any remaining balance. Understanding this rate helps in planning your repayment strategy to avoid unexpected interest charges.
- Credit Limit Considerations: The new card’s credit limit often limits the amount you can transfer. Ensure that the card offers a sufficient limit to accommodate your existing debt.
- Annual Fees: Some balance transfer cards come with annual fees. Weigh this cost against the potential interest savings to determine if the card is beneficial in the long run.
Top Balance Transfer Credit Cards
Several credit cards stand out for their balance transfer offers:
Citi® Diamond Preferred® Card
- Introductory APR: 0% for 21 months on balance transfers
- Balance Transfer Fee: 5% of each transfer; minimum $5
- Regular APR: 17.24% – 27.99% (Variable)
- Annual Fee: $0
- Additional Benefits: Access to Citi Entertainment and free FICO score monitoring
Citi® Double Cash Card
- Introductory APR: 0% for 18 months on balance transfers
- Balance Transfer Fee: 3% of each transfer; minimum $5
- Regular APR: 18.24% – 28.24% (Variable)
- Annual Fee: $0
- Additional Benefits: Earn 2% cash back on all purchases (1% when you buy and 1% as you pay)
Wells Fargo Reflect® Card
- Introductory APR: 0% for 18 months on balance transfers and purchases
- Balance Transfer Fee: 3% if completed within 120 days of account opening; up to 5% thereafter
- Regular APR: 17.24% – 29.24% (Variable)
- Annual Fee: $0
- Additional Benefits: Up to $600 protection on your cell phone against covered damage or theft when you pay your monthly cellular telephone bill with the card
Discover it® Balance Transfer
- Introductory APR: 0% for 18 months on balance transfers
- Balance Transfer Fee: 3% of each transfer; up to 5% on future transfers
- Regular APR: 18.24% – 27.24% (Variable)
- Annual Fee: $0
- Additional Benefits: Unlimited cash back match at the end of your first year, 5% cash back on rotating categories, and 1% on all other purchases
Eligibility Criteria for Balance Transfer Credit Cards
Not everyone qualifies for a balance transfer credit card, as banks have certain requirements that must be met. Below are the common eligibility factors:
Credit Score Requirements
- Most balance transfer credit cards require good to excellent credit (typically 670+ on the FICO scale).
- If your credit score is below this range, you may have fewer options or higher fees.
Income Verification
- Card issuers often require proof of income to ensure you can make payments.
- You may need to submit bank statements, tax returns, or salary slips.
Existing Debt Load
- Some issuers limit balance transfers based on your current debt-to-income ratio (DTI).
- If you have high existing debt, your balance transfer request may be denied.
Issuer-Specific Requirements
- Some banks don’t allow balance transfers between cards from the same issuer.
- For example, you can’t transfer a balance from a Citi® card to another Citi® card.
How to Apply for a Balance Transfer Credit Card
Applying for a balance transfer credit card is straightforward, but you need to be strategic to maximize approval chances.
Steps to Take Before Applying
- Check your credit score: Ensure your score meets the card issuer’s requirements.
- Compare card options: Consider factors like APR, fees, and transfer limits.
- Calculate the savings: Ensure the transfer fee doesn’t outweigh the interest savings.
- Pay down existing debt: A lower debt-to-income ratio improves approval odds.
Application Process
- Choose a suitable balance transfer card
- Select a card with a long 0% APR period and low fees.
- Fill out the application form
- Provide personal and financial information, including your income, employment details, and existing credit obligations.
- Request the balance transfer
- After approval, you’ll need to submit the balance transfer request, specifying which debts to transfer.
- Wait for approval and processing
- Transfers can take 5–14 business days, so continue making payments on the old card to avoid late fees.
- Start paying off the balance
- Pay off the transferred balance before the 0% APR period expires to avoid high interest.
Strategies for Maximizing Balance Transfer Benefits
To make the most of a balance transfer, follow these key strategies:
1. Pay Off Debt Within the Introductory Period
- The 0% APR offer is temporary, often lasting 12–21 months.
- Divide the balance by the number of months in the promo period and aim to pay it off before interest kicks in.
2. Avoid New Debt While Paying Off the Balance
- Many people make the mistake of continuing to use the old card after a balance transfer.
- Keep your spending in check to avoid accumulating new debt.
3. Set Up Automatic Payments
- Missing a payment could void the 0% APR and trigger high interest rates.
- Automate your payments to ensure you never miss a due date.
Potential Pitfalls of Balance Transfers
While balance transfers can save money, they come with risks:
High Balance Transfer Fees
- Most banks charge a 3%–5% transfer fee.
- For a $10,000 transfer, you might pay $300–$500 upfront.
Short Introductory Periods
- If you don’t pay off the debt before the 0% APR expires, you could face a high regular APR (often 18%–29%).
Impact on Credit Scores
- Applying for a new credit card results in a hard inquiry, which can lower your credit score temporarily.
- Increasing your available credit can improve your credit utilization ratio, but closing old accounts after a balance transfer can hurt your credit age.
Alternatives to Balance Transfer Credit Cards
If a balance transfer isn’t the best option for you, consider these alternatives:
Personal Loans
- Fixed interest rates and structured repayments.
- Ideal if you need more than 21 months to repay the debt.
Debt Consolidation Programs
- Some financial institutions offer debt consolidation plans to combine multiple debts into a single, lower-interest payment.
Negotiating with Creditors
- Call your credit card issuer and ask for a lower interest rate.
- Some issuers offer temporary hardship programs with reduced interest.
Impact of Balance Transfers on Credit Scores
Balance transfers can have both positive and negative effects on your credit score:
Positive Impact
- Lowering your utilization ratio (credit used vs. total available credit).
- Paying off debt faster improves your overall financial health.
Negative Impact
- Opening a new account results in a hard credit inquiry.
- Closing the old card reduces your credit age, potentially lowering your score.
To minimize negative effects, keep old accounts open and use them occasionally to maintain credit history.
FAQs about Best Balance Transfers on Credit Cards
What is a balance transfer on a credit card?
A balance transfer involves moving the existing balance from one credit card to another, typically to take advantage of lower interest rates. This financial strategy can be a savvy move to reduce interest payments and consolidate debt.
How do I choose the best balance transfer credit card?
When selecting the best balance transfer card, consider the introductory interest rate, the duration of the low-interest period, balance transfer fees, and the regular APR after the promotion ends. Comparing these factors will help you find the most cost-effective option for your financial situation.
Are there fees associated with balance transfers?
Yes, most credit cards charge a fee for balance transfers, generally around 3% to 5% of the transferred amount. It’s important to calculate whether the interest savings will outweigh this fee to ensure it’s a beneficial move.
What should I watch out for when doing a balance transfer?
Be cautious of the length of the low-interest period, the interest rate post-promotion, and penalties for late payments, which might cancel out the introductory offer. Also, avoid using the new card for purchases, as these might attract higher interest rates and additional fees.
How long does a balance transfer take?
A balance transfer can take anywhere from a few days to several weeks. It’s wise to continue making payments on your old card until the transfer is confirmed to avoid late fees and interest charges.
Can a balance transfer affect my credit score?
Initially, a balance transfer might impact your credit score due to the credit inquiry from the new card. However, if used responsibly, it can improve your score over time by reducing your credit utilization ratio and consolidating debts into a single payment.
By carefully considering these aspects, you can effectively manage your finances through a strategic balance transfer.
Conclusion
Balance transfer credit cards can be a great tool for paying off debt interest-free—but only if used wisely. Before applying, compare introductory APR offers, fees, and regular APRs to find the best deal. Always have a repayment strategy in place to avoid high interest rates once the promo period ends. If used strategically, a balance transfer can help you become debt-free faster and improve your overall financial health.
