How much of your credit card debt could you eliminate if you didn’t have to pay any interest until 2025?
It’s not a hypothetical question; you can forgo any added interest for up to 21 months using a 0% APR balance transfer offer. With the long introductory periods they offer today, balance transfer credit cards can play a significant role in your journey to becoming debt-free.
Here’s how you can decide if a balance transfer card is right for you — and what to look for before you apply.
What is a balance transfer credit card?
A balance transfer credit card is a tool to pay down existing debt. After opening, you can transfer the debt balances to your card and pay 0% interest on that balance for a limited time.
Today's introductory 0% APR periods can last up to 21 months; but a 12-, 15-, or 18-month offer is more common. Over that time, you won’t incur any new interest on the amount you transfer, meaning each payment will go directly toward the principal balance. If, like many cardholders, you’re currently earning upwards of 20% APR on your credit card balances, this can go a long way toward helping you reduce your debt.
After the introductory period, a balance transfer credit card works like any other credit card. If part of your transferred balance remains, you’ll start paying interest on it at the card’s ongoing APR, alongside any new purchases you make.
Some cards with balance transfer offers also have ongoing rewards or benefits for new purchases you make, such as cash back on everyday spending. Others — especially those with the longest intro periods — may be designed primarily for balance transfers and lack any long-term rewards structure.
How a balance transfer credit card can help you save
Not only is credit card interest expensive, but it’s as high as it’s ever been. Today’s average credit card interest rate is around 21% — higher than at any other point since the Federal Reserve began tracking rates in the 1990s.
Compared to those double-digit interest rates, it’s not difficult to see how even a limited-time 0% APR can help you save on debt payoff.
You can maximize your balance transfer savings by having a plan to pay your balance in full before the intro period ends. But even if that’s not possible, you can still shave months and potentially thousands of dollars of your total amount paid. Just how much you save depends on a few details, including the length of your intro period and how much you can pay each month.
Balance transfer example
Let’s say you have a credit card balance of $5,500 today — about average, according to a report from the Consumer Financial Protection Bureau — on a card earning 21%. Here’s what your journey to pay down debt could look like over a few different scenarios:
Minimum payments: This is by far the most costly option. Making only minimum payments, you would add nearly $9,000 in interest to your total over more than two decades before paying your balance off in full. Total paid: $14,499
Fixed monthly payment: You can minimize cost by paying more than your monthly minimum, even if you’re unable to pay your balance in full. Maybe you can afford to contribute a fixed payment of $200 each month toward your debt. In this case, you’ll pay your balance off in full after three years, but still add more than $2,000 to your total balance. Total paid: $7,566
Now, let’s see how a balance transfer credit card could make a difference in your $5,500 debt. This card comes with an 18 month 0% introductory APR and a 3% balance transfer fee (more on that below). After the intro period, you’ll take on the same 21% APR.
Pay in full: If you’re able to put at least $314 toward your credit card bill each month, you could wipe out your balance in full by the end of the intro period, without paying any additional interest. The only payment added to your principal is the 3% fee, equal to $165. Total paid: $5,665
Fixed monthly payment: If the amount you need to pay in full is out of your budget, you can still save with a balance transfer offer. Maybe you can still afford the same $200 monthly payment as before the transfer. Over the introductory period, you would pay down $3,600 of your principal balance, lowering your debt to $2,065. Once the APR starts to accrue, you could cover the remainder in one year with only $235 in added interest. In total, transferring your balance would allow you to pay your balance in full over 30 months and with about $400 in added interest and fees. Total paid: $5,900
Balance transfer costs and fees
You can save a lot of money with a balance transfer credit card, but you should still prepare for the potential costs you’ll incur.
Balance transfer cards don’t typically carry an annual fee. However, there is often a fee for transferring your balance. Balance transfer fees can range from 3%-5% of your overall balance, usually with a minimum of around $5.
Say you have a $3,000 balance you want to transfer to a card with a 0% intro APR and a 3% balance transfer fee. The balance transfer would cost you $90 in total. The larger your balance, the more you’ll pay for the balance transfer. Still, these fees are likely only a small fraction of the interest you would otherwise pay.
There are some balance transfer credit cards that waive this fee. If you have a very high balance that could lead to a costly fee — or you simply want to avoid any added cost altogether — you may want to focus on balance transfer cards with no fee.
3 ways to maximize your balance transfer credit card
Do these three things to best maximize your card while paying down debt and beyond:
1. Make the most of your introductory 0% APR
The introductory period on your balance transfer card only lasts so long. Take full advantage by transferring your balance as soon as you can after approval. If your new card offers an 18-month 0% APR intro period but you wait two months to make your transfer, you’ll only make it more difficult to pay down your debt in that shorter time frame.
Some balance transfer cards even require you to transfer your balance within a certain timeframe. Your card agreement may specify, for example, that the 0% APR offer applies to transfers made within the first 30 days of account opening. Alternatively, you could take on a larger balance transfer fee the longer you wait. There may only be a 3% fee for balances transferred within 60 days of account opening, for example, but a 5% fee for balances transferred after that time.
2. Focus on debt payoff
Throughout the intro period, prioritize only paying down your debt — without making new purchases that increase your balance. You’ll only leave yourself with more to pay off before the intro period ends.
Instead, focus on buying only what you can afford to pay off in full. Whether you make purchases with another credit card or use your debit card or cash, make sure you have enough money in the bank to cover your spending.
This may also help you become more aware of any spending habits that led to taking on the debt in the first place so you can avoid ending up back in the same place again.
3. Think about the long-term
If debt payoff is your priority, long-term rewards or benefits may not be the biggest concern when choosing your balance transfer card, but they are worth considering.
Balance transfer credit cards with the longest introductory 0% APR periods (up to 21 months) typically offer few ongoing benefits. They are designed for cardholders looking to pay off as much debt as possible over a longer period.
Credit cards with balance transfer offers and ongoing rewards or other benefits, on the other hand, tend to have slightly shorter intro periods of around 12 to 15 months. Even after you pay down your debt, these cards can offer a lot of long-term value on your everyday purchases. Just make sure you have a plan to avoid overspending and taking on debt once again.
Balance transfer pros and cons
Knowing these benefits and drawbacks can help you decide if a balance transfer is right for you:
0% introductory APR: When you use a balance transfer card with an introductory 0% APR offer, any payments you make throughout the intro period will go directly toward your principal balance. Instead of interest making it more difficult to pay off your debt, you can use this tool to eliminate the underlying balance.
No annual fee: The best balance transfer cards available today have no annual fee, so you don’t have to worry about any additional cost of owning the card.
Debt consolidation: If you have balances spread across multiple credit cards, you may be able to consolidate them onto a single balance transfer card. Not only can you benefit from the period of interest-free payments, but you’ll also minimize the number of individual monthly payments you need to remember (just make sure the total transferred balance is less than your card’s credit limit).
Risk of not paying your balance off in full: You may not be able to maximize your balance transfer if you’re unable to prioritize your monthly payments over the intro period. These cards work best if you can commit to paying down a significant portion of your balance over the 0% APR offer. Otherwise, you’ll be left with a growing balance once again when your regular interest rate begins.
Balance transfer fees: The fees that issuers charge to make your transfer can add to your overall balance. But for the majority of cardholders, a 3% or 5% fee is still going to be far less than the amount you would otherwise accrue in interest charges.
Credit limits: Make sure you know your balance transfer credit card’s credit limit before you attempt to make your transfer. If your existing debt is more than the limit, you won’t be able to transfer the entire balance.
Should you open a balance transfer card?
If you’re in credit card debt right now, a balance transfer credit card could be a big help. But it may not be the best choice for every cardholder. Think about these things before you make your decision:
It’s important to remember that a balance transfer isn’t your only option for debt payoff. Consolidating debt with a personal loan may be a better option for some people, for example.
If your existing debt far exceeds the credit limit on a new balance transfer card or you need more time than you can find among 0% APR offers today, opting for a personal loan with a fixed APR that’s lower than your current credit card could be a good solution.
Not only do you need good credit to qualify for a balance transfer card, but a balance transfer itself can also potentially affect your credit.
For one, when you open any new credit card (including a balance transfer card), the required hard inquiry on your credit could lead to a small, temporary credit score drop. To keep multiple applications from sinking your score, only apply for cards you’re confident you’ll qualify for or get prequalified before applying.
Another potential credit impact involves your credit limit. If you transfer a debt balance that makes up nearly your entire credit line, you could increase your credit utilization ratio — the amount of credit you’re using compared to the amount you have available. This is one of the most influential factors in your credit score; the lower it is, the better. However, if you can keep up with your payments and begin to quickly bring down your balance over the intro period, you can mitigate the negative effect and balance the ratio.
Develop a plan
A good plan is the most important thing you can have before deciding to pay down debt with a balance transfer credit card.
Using your card details (length of intro period, balance transfer fee, etc.) determine exactly how much you need to pay each month to eliminate your balance in full before the 0% APR period ends. If necessary, look at your budget and spending before you apply to find areas where you can reduce spending to dedicate more toward your monthly payments.
If you can't pay off your balance completely, think about what next steps you’ll take once interest kicks in to keep the remainder from growing out of your control.
And don’t forget to rethink your spending over the long term to ensure you don’t wind up with another debt balance in the future. Practicing good credit habits and spending only what you can afford is the best way to take advantage of the rewards and benefits of credit cards without paying the price tag of high interest.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers.