What is a balance transfer credit card?

If you’re struggling to pay down high-interest credit card debt, a balance transfer may be a strategy to help you pay it off using a balance transfer credit card offer. But what is a balance transfer credit card, anyway? In short, it’s a credit card that carries a promotional 0% interest period on balances transferred from another credit card. This grants you a timeframe to pay down the balance without accruing additional interest. Let’s get into how balance transfer credit cards work and what card qualities you may want to look for if you decide to open one.

How do balance transfer credit cards work?

You may be wondering how a credit card balance transfer works. Typically, the process is fairly straightforward and will likely incorporate some or all of the following steps:

1. Shop for cards: Typically, you can find 0% interest balance transfer credit card offers directly through card issuer websites. Sometimes, lenders may also mail (or email) promotional offers to you directly. Comparing factors like the length of a promotion term or potential fees may help you narrow down your options.
2. Apply through the lender: Once you decide which credit card is right for you, you’ll need to apply. When you apply, you’ll usually be asked to provide information about the balance you’re going to transfer, such as the account number and the total amount being transferred.
3. Determine which debt to transfer: If you're approved, your next step will likely be to determine which high-interest credit card debt you’d like to transfer. While you can choose which accounts to transfer, knocking out your highest interest debt first may help reduce your overall debt burden a little faster. Note that your new card will likely come with a credit limit restricting the amount you can transfer.
4. Initiate the transfer: You can usually submit your balance transfer request online through an account portal on your lender's website. You may also be able to initiate the transfer through a phone call with a customer service representative. Note that there will likely be a balance transfer deadline, so you’ll need to initiate your balance transfer before that to take advantage of the introductory offer. You can refer to your cardmember agreement to learn more about the terms and conditions of the promotion.
5. Pay the balance transfer fee: After your balance transfer is initiated, you may be required to pay a balance transfer fee, calculated as a percentage of the transfer amount — this amount is generally added to your new credit card’s balance.
6. Continue making monthly payments: You'll be required to make at least the minimum payments on your new credit card, which will be based on the transferred amount, plus any new purchases you’ve made since. Once again, it may help to read through your cardmember agreement, as missed payments may cause you to lose out on the introductory APR offer.
7. Prepare for the post-introductory period: After your 0% interest introductory period expires, you’ll begin to pay a regular interest rate as determined by your lender on any remaining balance.

How to choose a balance transfer credit card

Not all balance transfer credit cards are created equal, and some may be more beneficial to you than others. If you’ve decided that transferring your balance is the right decision for you, here are some factors you may want to consider:

• Compare promotion periods: Balance transfer credit cards carry different promotional periods between offers. Choosing a credit card with a longer promotional period will give you more time to pay off your transferred balance without interest.
• Understand the balance transfer deadline: Most promotion offers set a deadline for you to complete your transfer to qualify for the card’s 0% APR introductory offer. This is typically between 30 to 120 days after opening your account.
• Be mindful of fees: Many balance transfer credit cards charge a balance transfer fee, which is typically 3-5% of the amount you transferred. Although rare, some lenders may waive this fee.
• Look at post-introductory offer interest rates: You’ll be subject to a regular interest rate (per your cardmember agreement) on any remaining balance after your introductory period ends. Finding a card with a lower post-introductory interest rate may make it easier on your wallet later on if you’re unable to fully pay off your transfer balance before the end of the introductory period.
• Choose a different lender: In most cases, you will likely be unable to initiate a balance transfer between cards from the same issuer.
• Check for a purchase interest rate: Issuers typically separate balance transfer interest rates from purchase interest rates. This means that you may be immediately subject to interest if you make a purchase with your new card. Shopping around for a balance transfer credit card with a lower purchase rate may be beneficial if you plan to spend with it.

In summary

Taking advantage of a balance transfer credit card with a 0% introductory interest rate may be one way to shave off high-interest credit card debt when used responsibly. If you’ve decided that opening a balance transfer credit card is right for you, it may pay to shop between card options and compare factors like promotional offer length and associated fees. If you’re approved, it's helpful to read through the terms and conditions so you can be better informed on how to make the best use of your new credit card’s promotion period.