Credit Card Balance Transfer Pros and Cons

By Mike Peterson
In May 27, 2015

If you’re carrying a substantial amount of credit card debt, there’s a good chance that you’ve probably at least considered using a credit card balance transfer to pay off credit card debt that have high interest rates.  And with good reason: With super-low interest rates, balance transfer offers can seem like a ray of hope in an otherwise bleak debt situation.

But are credit card balance transfers a good way to get out of credit card debt? Or will a balance transfer end up doing more harm than good in the long run?

Well, that depends on several factors.  In some cases, balance transfer credit cards can help make a dent in your high-interest credit card debt.  But if you can’t commit to responsible use, or if you don’t do your homework before you apply, balance transfers can actually create more debt problems.

Not sure if a balance transfer is right for you?  Here are five things to consider before applying for a balance transfer credit card.

  1. The 0% interest rate is temporary. The most appealing part of a balance transfer is that most balance transfer offers come with an introductory 0% interest rate – which is especially appealing if you’re currently paying down a credit card with an interest rate of around 15 to 17%.  But here’s the thing:  Those zero-percent interest rates aren’t permanent:  They’re introductory rates, and, depending on the card, they expire anywhere from 6 to 24 months after you open the account.

If you can pay off your entire balance before the 0% rate expires, you’ll save some money.  If you can’t, you might not be much better off than you were before the balance transfer.

  1. You’ll pay a balance transfer fee. A typical balance transfer fee is around 3% of the amount you’re transferring – and you’re charged right away. So, let’s say you transfer $15,000 in credit card debt to a new card.  If your new card company charges a 3% balance transfer fee, you’re looking at an extra $450 in fees.

Keep in mind that balance transfer fees aren’t always a dealbreaker.  If you think you can pay off your $15,000 balance before the 0% interest rate expires, you’ll probably still come out ahead – even with the balance transfer fee.  On the other hand, if you think you can pay it off in a few months, it might make better financial sense to skip the balance transfer (and the accompanying fee) and focus on paying off your debt quickly.

  1. It’s important to read the fine print. This should be standard practice when applying for any credit card, but it’s especially important with balance transfer credit cards.  Pay special attention to when your introductory interest rate expires, as well as the rules for grace periods, new purchases, annual fees, and cash advances.

Of course, if you’re planning to use your balance transfer credit card for new purchases or – even worse – cash advances, you may need to seriously consider whether a balance transfer is right for you.  This brings us to the next item on our list . . .

  1. Balance transfers can result in more debt. Used responsibly, a balance transfer can help save you some money in interest payments, making it faster and easier to pay off credit card debt.  If you don’t use your balance transfer credit card responsibly – as in, you use it to make more purchases you can’t afford or you treat it like a makeshift emergency fund – you’ll likely end up in more debt then you were when you started.

This is why it’s so important to do an honest self-evaluation before you apply for a balance transfer.  If you’re not 100% sure that you can use your balance transfer credit card responsibly, you might want to consider other methods for paying off debt.

  1. If you’re not careful, balance transfers can hurt your credit score. The goal of a balance transfer should be to pay down high-interest credit card debt, which in turn will help reduce your ratio of available credit to used credit.  And the more unused credit you have, the higher your credit score.

Sounds simple, right?  Well, it is – provided you avoid a few common balance transfer missteps that can bring down your credit score.  I’ve already mentioned the risks of racking up more debt, but that’s only one possible credit-killer.  A few other things to keep in mind:  Balance transfers can take several days to process, so keep making payments on your old card until your balance transfer is official.  Once the balance transfer is complete, avoid closing the “old” card – keeping it open will increase your total available, unused credit.  And finally, avoid applying for too many balance transfers at once – multiple inquiries in a short amount of time can ding your credit score.

So, are balance transfers a good idea?

I guess the short answer is, balance transfers aren’t always the best solution for paying down debt. But when you’re dealing with debt, there’s not always a “best” solution.  And if you know what you’re getting into beforehand, balance transfers can be a useful tool.

And remember, if you need information or advice about how to pay off credit card debt, you can contact the Debt Guru team today for a free debt consultation.

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.

Click "More" for important American Credit Foundation client transition information