Balance Transfer Credit Card Mistakes to Avoid

As of August 2021, the total amount of outstanding consumer revolving debt, including credit cards, was just over $1,001 billion. If you’re one of the many Americans struggling to pay down credit card debt, you might wonder how you can get ahead when your interest rates are high and the balance never seems to budge. One tip for paying down credit card debt faster is to use balance transfer cards. Find out how to do a balance transfer and get other tips for using these financial tools below.

In This Piece

What are balance transfer cards?
How balance transfer cards work
Why to use a balance transfer card
Tips for getting the most out of balance transfer cards
Mistakes to avoid

What Are Balance Transfer Cards?

Balance transfer cards are credit cards that include a balance transfer offer. That offer lets you move all or some of the balance from an existing card to a new one. Usually, the purpose of doing so is to reduce the interest rate you’re paying on the balance.

How Balance Transfer Cards Work

Balance transfer cards work by providing a mechanism for paying down one credit card balance with the credit limit of a different card. You may need to call your card’s customer service line to conduct the transfer. Some credit card companies provide you with paper checks for this purpose or offer a way to transfer balances online. Make sure you read all the fine print that comes with your card to understand which option is best for you.

Why Would You Use a Balance Transfer Card?

People use balance transfer cards for a few reasons. The most common is that they want to pay down their debt faster. If the balance transfer credit card has a better interest rate than their existing card, transferring the balance to the new card can reduce the overall cost of the debt.

To understand this principle, consider the example below.

Sue has a $3,000 balance on a card with a 21% interest rate. If she can only pay $150 per month on the balance, it will take her around 94 months to pay it off. It will also cost her approximately $1,526 in interest.
Sue gets an offer for a balance transfer card with 0% introductory APR for 24 months. She could transfer that $3,000 balance and pay $150 per month for 20 months. The balance would be paid off much faster and she would save $1,526 in interest!

Another reason people might use balance transfer cards is to move their balance to a new bank. If you’re not satisfied with the customer service offered by your current credit card company, you might consider a balance transfer.

Tips for Getting the Most Out of a Balance Transfer Card

Using balance transfer credit cards correctly helps you get the most out of them. Here are some tips for maximizing those benefits.

Look for introductory APR offers. If you can get 0% on your balance transfer for a year or two, you may be able to pay off credit card debt much faster. It also costs you a lot less in interest. These offers last at least six months, but many competitive offers will last for 15 to 18 months. The longer the introductory offer, the better your chances of paying off the debt and avoiding high interest. Look for a card that offers a longer offer with a low interest rate.
Think carefully before closing accounts. Keeping an old credit card account open improves your credit utilization, credit age, and credit mix. Those factors in turn can positively impact your credit score. Consider keeping your old accounts open even if you won’t use them regularly.
Don’t run up your older balances. If you decide to keep your old accounts open, avoid using the old card to run up new debt. Doing so could put you in a position where you owe double the credit card debt you started with!

Mistakes to Avoid when Using Balance Transfer Cards

Balance transfer cards aren’t always the best option. In some cases, they might end up costing you more in fees, for example. Avoid the mistakes below to take full advantage of balance transfer options.

Not doing your research. Compare offers to find one that provides the biggest benefits. Look for a card that has the longest introductory APR, lowest balance transfer fees, and best terms after the introductory period.
Using a balance transfer when you can pay the card off quickly. If you don’t need help paying your credit card balance off fast, a balance transfer could cost you more due to balance transfer fees. If you can pay the balance off in a month or two, you might end up paying less in interest than you would in transfer fees. Run the numbers yourself to figure out which move is right for you.
Delaying a balance transfer. If you decide balance transfer is the way to go, do it as soon as you can. The sooner you move a balance, the faster you start saving on interest. Plus, many balance transfer cards only give you a short window to use the introductory APR offer.
Carrying the balance past the introductory offer. Don’t procrastinate on the debt once you have a low or 0% APR. Pay it off as fast as possible. If you’re still carrying the balance when the offer expires, you could be hit with interest fees that make it hard to pay off the debt later.

Can You Do a Balance Transfer with the Same Bank?

Balance transfer offers are typically used by banks to entice new customers. Because of this, a bank usually won’t offer balance transfers with low introductory APR to existing account holders. And since the savings associated with those lower interest rates is the primary benefit of a card transfer, it doesn’t make sense to transfer your balances between cards with the same bank.

Can You Do a Balance Transfer Twice?

If you qualify for other balance transfer credit card offers, you can transfer part of the same balance again. This may be an option if you can’t pay your total balance off within the introductory APR period on the first balance transfer card. Moving the balance again can stretch out how long you have to pay.

However, you do have to be aware of the terms. Many balance transfers come with a 3% or higher balance transfer fee, for example. If you keep transferring the balance and paying that fee, are you really saving any money? Do the math so you understand where you stand before you transfer balances.

The Bottom Line on Balance Transfers

Like any form of credit, balance transfer credit cards are a financial tool. Use them responsibly and you can reap numerous benefits. If you think there’s room in your financial life for one of these tools, consider applying for a balance transfer card today.