What is a balance transfer credit card?

Balance transfer credit cards are a smart option if you want to move existing credit card debt to a card with a lower interest rate. That said, credit card balance transfers often come with fees and can leave you worse off if you don’t use them responsibly.

How do credit card balance transfers work?

A balance transfer rate refers to a special low interest rate — sometimes even 0% — that’s applied to credit card balances you transfer from another credit card. This rate is different to a credit card’s purchase rate, which is the interest charged on the things you buy.

Promotional balance transfer rates typically apply for a limited period, usually six to 36 months. After this period, the rate resets to a higher revert rate, which might be based on the card’s purchase rate or cash advance rate.

The cash advance rate is the interest rate applied to cash withdrawals from your credit card account — this is almost always more expensive than the purchase rate.

The key takeaway is this: The longer the balance transfer rate applies, the more time you have to pay off the transferred amount at the reduced rate. So, if you move $10,000 to a card with 0% interest on balance transfers for six months, you should plan to pay off the debt within that time in order to avoid interest.

» MORE: Can I transfer money from a credit card to a bank account?

How to transfer a credit card balance

When applying for a balance transfer, you’ll need to include the amount you want to move, the name of your current credit card provider and the card details on your balance transfer card application.

Once the application is approved, your new provider will pay off your old account and roll over the amount to your new credit card.

Balance transfer limits

When choosing a balance transfer card, remember that some providers restrict the amount you can move. If you can’t move the entire balance, you could end up paying interest and fees on both the old and the new card.

Let’s say you have $10,000 outstanding on your current credit card. If your new balance transfer card allows transfers up to 80% of your approved limit, then you’ll need a limit of $12,500 to move the entire $10,000 across.

🤓 Nerdy Tip

You can’t transfer your balance to a new card with the same bank or another bank owned by the same parent entity.

Balance transfer fees and costs

Despite their potential benefits, balance transfer cards also have costs and fees. These include:

Interest on new purchases. Balance transfer cards tend to have higher purchase rates than other credit cards. Any repayments you make on the card will automatically go toward the balance with the highest interest rate. So, if you use the card for purchases, the repayments will cover those debts first and then the transferred balance. Ideally, you’d want to pay off your monthly purchases in full and pay down a portion of your transferred debt.
Annual fee. Most credit cards have an annual fee, but some issuers may waive or reduce this fee for the first year.
Balance transfer fee. Credit cards often charge a one-time fee for transferring a balance, typically up to 3% of the amount you want to move.
Other credit card fees. Penalties for late payments or exceeding your credit limit, as well as cash advance fees and foreign transaction fees, may apply.

How much could you save?

The amount you can save depends on the size of your debt, the interest you’re currently paying, the length of the low-interest or interest-free offer, and the fees involved.

For example, let’s say you owe $10,000 on your current credit card, which has an annual interest rate of 19.94%. If you repay $250 each month, it will take five years and five months to pay off the balance in full, and it would cost $6,091 in interest.

If you move the $10,000 to a card with a balance transfer interest rate of 0% for 24 months and a 3% transfer fee, you can be debt-free in two years by paying roughly $430 monthly (including the $300 in transfer fees). However, this scenario does not factor in any additional fees or charges you may need to pay. It also assumes you won’t use the card to make new purchases.

It’s equally essential to point out that if the balance isn’t repaid in full before the revert rate kicks in, you might be charged a higher interest rate than what you paid on your previous card.

Getting your first credit card?

Whether you’re a beginner or a credit card pro, make sure you know how to handle a credit card responsibly. It’ll save you time, money and frustration.

Is it worth transferring a credit card balance?

Combining your credit card balances into a single amount can be worth it if you have multiple debts. It can:

Ease the burden and confusion of making payments on several cards each month.
Reduce fees if you’re paying an annual fee for each card.
Offer lower interest for a set period so you can pay off your debt faster.

It’s important to be realistic about how much you can repay during the low-rate period and whether you can solely focus on paying down the balance.

🤓 Nerdy Tip

If you’re transferring a balance multiple times, it’s likely a sign that you’re struggling to repay it. In this case, you might be better off creating a budget and a repayment plan rather than moving it again.

Making multiple balance transfer applications in a short time can harm your credit score and send a signal to lenders that you’re having trouble managing money.

» MORE: 7 money management skills to master ASAP

Not all types of credit cards allow balance transfers. For example, you can’t transfer balances to a no-interest, flat-fee credit card.

About the Authors

Kristie Kwok

Kristie Kwok is a personal finance expert and former contributing writer at NerdWallet Australia. She has covered personal and business finance for almost 10 years. She is a qualified chartered…

Georgia Rose

Georgia Rose is a lead writer on the international team at NerdWallet. Her work has been featured in The Washington Post, The New York Times, The Independent and The Associated…