The pros of balance transfers include saving money on interest, consolidating debt, and possible improvement in credit score in the long run. The cons of balance transfers include balance transfer fees, high regular APRs, and above-average score requirements. Generally, when you transfer a balance, you’re shifting high-interest debt to a credit card with a lower interest rate.
Pros and Cons of Balance Transfers
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Balance Transfer Pros
Save money on interest.
Many credit cards offer a 0% APR on balance transfers, and the average introductory rate lasts for 13 months. The best cards might even offer an intro APR for 21 months. Currently, the average regular APR among new credit card offers is 22.75%.
So, if you transfer your balance from a high-interest credit card to a card with a low introductory APR on balance transfers, you will have the opportunity to save on interest charges. To make the most of your balance transfer card, make sure to pay down as much of your balance as you can during the intro period. Keep in mind that the remaining balance will be subject to the card’s regular APR.
Consolidate debt.
If your credit limit allows it, you may be able to combine multiple credit card balances by transferring them to a balance transfer card. This way, you’ll need to make just one credit card payment every month. This strategy can make it easier to manage your payments.
Possible credit-score improvement in the long run.
A balance transfer card can help you decrease your credit utilization ratio, which will improve your credit score in time. When you open a new card for the purpose of transferring a balance, you will increase the amount of credit you have available every time you make a payment, which can lower your credit utilization ratio. For the credit utilization to go down, make sure to not incur any more debt in the meantime.
Better features and perks.
If your current credit card offers limited benefits and a high interest rate, transferring your balance to a new card might be a better idea. Many balance transfer cards also offer rewards and no annual fees. Some credit cards offer intro APRs on new purchases as well. If you are a frequent traveler, you may also get a balance transfer card with travel benefits and no foreign transaction fees.
Balance Transfer Cons
Balance transfer fees.
When you’re transferring a balance to a credit card with a low introductory APR on balance transfers, you will most likely be charged a fee. Transfer fees on credit card offers currently average 2.66% of the amount transferred. No balance transfer fee credit cards are rare and usually require excellent credit for approval.
High regular APR.
Balance transfer cards usually come with high regular APRs. So, before transferring a balance, make sure to choose a card with an intro APR that gives you enough time to pay down your balance before the intro rate expires. Otherwise, your remaining balance will be subject to a high regular APR. It’s also worth using a balance transfer calculator to plan out the necessary payments and estimate your savings.
Above-average score requirements.
Most credit cards with balance transfer offers require good to excellent credit for approval. This is also the case for credit cards with a low regular APR. So, if you have fair credit or lower, it will be hard to find a worthwhile balance transfer card. Students are a noteworthy exception as they can get approved for credit cards with great balance transfer deals even with limited credit.
The risk of building more debt.
A new credit card will result in a higher total credit limit, and if you don’t use your credit card responsibly, this may lead to building more debt. So, you have to be disciplined enough not to make purchases on your old credit card. If you’re having trouble managing your spending, it might be better to close your old credit card account after transferring your balance. However, doing so may impact your credit score.
Possible drop in credit score for a short period of time.
When you apply for a new credit card, this will result in a hard inquiry which may temporarily drop your credit score by a few points. You can get an idea of how much a hard inquiry will affect your credit score by using WalletHub’s free credit score simulator.
Ultimately, if you consider all the pros and cons and decide a balance transfer is right for you, the next step is choosing a balance transfer card. There are many cards on the market, but some are better than others. It’s important to do your research and choose the card that best suits your financial needs.
Best Balance Transfer Credit Cards in 2023
Overall:Wells Fargo Reflect® CardWells Fargo Reflect® CardLearn MoreLearn Moreon issuer's website- Long 0% Intro Period:Citi® Diamond Preferred® CardCiti® Diamond Preferred® CardLearn MoreLearn Moreon issuer's website
- No Balance Transfer Fee:Union Bank® Platinum™ Credit CardUnion Bank® Platinum™ Credit CardLearn MoreLearn More
- Good Credit:U.S. Bank Visa® Platinum CardU.S. Bank Visa® Platinum CardLearn MoreLearn More
- Students:BankAmericard® credit card for StudentsBankAmericard® credit card for StudentsLearn MoreLearn More
Alternatives to Balance Transfer Credit Cards
If you’re not convinced that getting a balance transfer card is the right call, there are other ways to pay down your debt. For instance, using a debt consolidation loan might be a better fit if you qualify for a competitive interest rate and a large enough loan. Factors such as your credit score, income, and existing debt play a significant role in determining your interest rate and loan amount.
This answer was first published on 07/07/22 and it was last updated on 07/15/22. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
As a financial expert with a deep understanding of credit cards, debt management, and personal finance, I bring valuable insights to the table. My knowledge is rooted in a comprehensive understanding of the financial industry, and I stay abreast of the latest trends and developments. Let's dive into the concepts covered in the article about the pros and cons of balance transfers.
1. Save Money on Interest:
- The article rightly points out that many credit cards offer a 0% APR on balance transfers. This can be a powerful tool to save money on interest payments, especially when the average regular APR among new credit card offers is highlighted as 22.75%. It emphasizes the importance of paying down the balance during the introductory period.
2. Consolidate Debt:
- The concept of consolidating debt is explained well. By transferring multiple credit card balances to a single balance transfer card, individuals can simplify their payments and potentially reduce their overall interest burden.
3. Possible Credit-Score Improvement:
- The article delves into the relationship between balance transfers and credit scores. It rightly mentions that a balance transfer card can help decrease the credit utilization ratio, positively impacting the credit score over time. However, it emphasizes the need to avoid incurring more debt for this strategy to be effective.
4. Better Features and Perks:
- The idea of choosing a balance transfer card with better features and perks, such as rewards and travel benefits, is highlighted. It suggests that individuals with high-interest and limited-benefit cards may find value in transferring their balance to a card with more advantageous features.
5. Balance Transfer Fees:
- The article discusses the downside of balance transfer fees. It correctly mentions that when opting for a low introductory APR, individuals are likely to incur a fee, which currently averages 2.66% of the amount transferred.
6. High Regular APR:
- The warning about high regular APRs on balance transfer cards is crucial. It advises individuals to choose cards with introductory APRs that provide sufficient time to pay down the balance before the regular APR kicks in.
7. Above-Average Score Requirements:
- The article highlights that most balance transfer cards require good to excellent credit for approval. This aligns with the general industry practice, emphasizing the importance of creditworthiness in accessing favorable balance transfer deals.
8. Risk of Building More Debt:
- The risk associated with the potential for building more debt with a higher total credit limit is discussed. It advises individuals to be disciplined in their spending habits and, if necessary, consider closing the old credit card account.
9. Possible Drop in Credit Score:
- The short-term impact on credit scores due to a hard inquiry when applying for a new credit card is correctly mentioned. It suggests using tools like WalletHub’s credit score simulator to estimate the effects on credit scores.
10. Alternative Debt Repayment Strategies:
- The article provides alternatives to balance transfer credit cards, such as debt consolidation loans, acknowledging that individual circ*mstances and qualifications play a significant role in determining the suitability of these alternatives.
In conclusion, the article provides a comprehensive overview of the pros and cons of balance transfers, offering valuable information for individuals considering this financial strategy.
