What Is A Credit Card Balance Transfer?

If the interest rate on your current card is making paying down the debt a struggle, moving the balance to a card with no or low interest rate can help. This action is what’s called a balance transfer. But they’re not always the best solution. Credit card balance transfers often come with fees, and promotional offers only last for a set period of time. If not used responsibly, balance transfers can leave you worse off.

What is a credit card balance transfer?

A credit card balance transfer is when you move credit card debt from one card to another. The new card often has a lower interest rate to make the move worth it.

To understand how balance transfers work, you first need to understand the three different interest rates issuers charge.

Purchases interest rate: When credit card issuers talk about interest rates, they’re often talking about the purchase interest rate, which applies to most purchases you make on the card. For example, if you pay for dinner with your credit card, the debt will typically be subject to the purchase interest rate if you don’t pay it back.
Balance transfer interest rate: The balance transfer rate applies only to debt transferred from another card. It’s often higher than the card’s regular purchase rate but can be reduced dramatically if part of a promotional offer, going as low as 0% in some cases.
Cash advance interest rate: The cash advance rate is the interest rate applied to cash withdrawals from your credit card account — this is almost always more than the purchase rate and is rarely part of promotional offers.

What is a promotional balance transfer rate?

Promotional balance transfer rates typically apply for a limited time, usually six to 28 months. After the promotional period is up, the rate reverts to the card’s standard balance transfer rate.

The key takeaway is this: The longer the promotional 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 frame to avoid interest.

» MORE: How is credit card interest calculated?

Balance transfer rules and restrictions

Limits

Some credit card issuers restrict the amount you can move, such as 80% of your credit limit. 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 on your current credit card. If your new card allows balance transfers up to 80% of your approved limit (and they levy a 3% balance transfer fee), then you’ll need a limit of at least $12,875 on the new card to move the entire $10,000 across.

🤓 Nerdy Tip

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

Rates and fees

Despite their potential benefits, balance transfers also have their downsides. Be mindful of the following fees and rates before you apply for a transfer.

Revert rate: The interest rate, which is always higher than the promotional rate, that applies to any remaining debt from the balance transfer once the promotional period ends.
Annual fee. Many 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, such as 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 and foreign transaction fees, may apply.

Paying your monthly bill

Using your card for different types of transactions can affect how you pay your bill. This is due to the fact that payments typically cover the debt with the highest interest rate first. So, if you transferred a balance with a promotional rate of 0%, and then used the card for everyday purchases at 23%, any payment you make to the card will go toward the purchases first.

Also, if you take advantage of an instalment plan or a promotional balance transfer offer, your bank will adjust the closing balance to ensure your bill excludes the transferred debt you owe but don’t have to pay back immediately.

So, if you want to pay off your monthly balance and pay down your transferred balance, you need to pay off your purchases in full and then make a payment toward the transferred balance.

Better yet, try not to use the card for new purchases so you can just focus on paying down the old debt.

» MORE: How to read your credit card statement

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 issuer and the card details on your balance transfer card application.

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

Learn more about how to transfer a balance in our step-by-step guide.

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.

Any type of credit card that offers balance transfer capabilities is technically a ‘balance transfer credit card’. However, cards that offer promotions for new or existing cardholders are the ones worth looking at. If a promotional offer isn’t available, look for a card with a low interest rate.

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…