4 Important Questions to Ask Before Transferring a Credit Card Balance

balance transfers

So you racked up thousands of dollars of credit card debt a few years ago.

You were in a tight spot and had to charge your groceries, gas, and other bills. Or maybe you were young and obsessed with shoes.

Whatever the reason, you’ve got a boatload of debt and are barely covering the interest payments each month.

Then, one day, an envelope arrives in the mail. In bold letters, it proclaims, “Transfer your balance to us and pay no interest for a year!”

And you wonder: Are balance transfers a good idea?

What are balance transfers?

Most commonly, balance transfers refer to the process of moving debt from one credit card to another.

When you transfer a balance, it’s usually because the other card is offering a lower interest rate for a certain period of time. The most common offer is 12 months at 0% interest with a 3 percent fee, according to CreditCards.com.

If you have high-interest credit card debt, a balance transfer could save you a significant amount of money — because every payment will go toward the principal rather than toward your mounting interest.

Or if you’re struggling to pay several different credit cards, a balance transfer could consolidate them all into one bill.

Here’s how the numbers might shake out, according to CreditCards.com’s calculator.

Let’s say you’re paying $200 per month on $10,000 of credit card debt at an 18.00% interest rate (APR). If you moved to a card with a 0% interest rate for 12 months and continued paying $200 per month, it still would take you almost six years to pay off your card — but you’d save $4,584 of interest (after fees).

If you managed to pay $858 per month on the card — therefore paying it off during the promotional period — you’d save $8,322 in interest (after fees).

Balance transfers aren’t just for credit cards, either. You can transfer other types of debt, including student loans.

balance transfers

Image credit: WalletHub

When it comes to your credit score, performing a balance transfer won’t have a significant effect. Because you’ll be opening a new card, your score might drop temporarily — but it should increase later because of a lower credit utilization ratio.

That said, balance transfers generally are available only to people with good to excellent credit. If you’re not in that category, a personal loan might be a better fit and could save you just as much money.

Using the numbers above, let’s imagine you took out a personal loan for five years at 12.00% interest. According to our credit card consolidation calculator, you’d pay $222 per month and save $5,253 in interest.

Are balance transfers a good idea? 4 questions to help you decide

Besides the obvious — that you should transfer balances only if you can lower your interest rate — what are some other things you should look out for?

Here are four questions to ask yourself before accepting a balance transfer offer.

1. Are the fees reasonable?

Most credit cards charge a balance transfer fee, which often equals a certain percentage of the balance transferred. It will be charged to your new credit card.

So if you’re transferring $10,000 with a 3 percent fee, you’ll need a credit limit of at least $10,300 to account for both the balance and the fee.

Look for a card without a balance transfer fee. If you can’t find one you qualify for, then do the math on other balance transfer cards. If the fees are greater than the interest you would’ve paid on the initial card, it’s not worth it.

2. Can you make on-time payments each month?

In many cases, if you’re late paying your bill for a 0% interest credit card, the promotional offer will end. That means the interest rate will jump to some insanely high rate, putting you in the same boat as before.

To prevent that outcome, set up an automatic minimum payment each month. If you want to pay more, you can log in and do so — but this way, you won’t ever be late.

Also note that the promotional interest rate likely won’t apply to purchases. In fact, most balance transfer cards start collecting interest on new purchases immediately, meaning you shouldn’t use your new card for anything other than housing your old balance.

3. Will you pay off your card before the offer ends?

In a perfect world, you’d pay off your entire balance before the end of the promotional period (and accompanying low interest). But the world is far from perfect, which is why it’s imperative to do the math.

As the earlier example showed, taking advantage of 12 months of 0% interest — and then continuing to pay the card for five more years — would save you nearly $5,000 of interest. On the other hand, paying it off during the promotional period would save you more than $8,000.

In that example, both situations save you money — but that won’t always be the case. If the numbers don’t add up, consider transferring only a portion of your balance or taking out a personal loan instead.

4. Can you avoid using the old card?

This is the most important question because you should pursue a balance transfer only if you won’t rack up more debt on the old card. The last thing you want to do is end up with two high-interest debts you can’t pay off.

To avoid damaging your credit, you shouldn’t close the old card — but you shouldn’t use it, either. If you can’t trust yourself, then put the old card through the paper shredder; it’ll still be open but unavailable for purchases.

If you answered yes to all the questions above, then a balance transfer might be a good option for you. If not, you might want to consider going a different route. Maybe a personal loan would be better for you.

Before choosing either path, though, you should take one important step: Create a budget and stick to it so you can avoid ending up in this situation again.

Interested in a personal loan?

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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4.98% - 14.24%1$5,000 - $100,000
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5.99% - 16.24%2$5,000 - $50,000Visit Citizens
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