The Right Way to Do a Credit Card Balance Transfer

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What is a balance transfer?

It sounds like a simple question. And for the most part, it is. As its name suggests, a balance transfer involves transferring a balance from one credit card to another, typically with a lower APR.

The more complicated question is, what makes a good balance transfer? If you do it right, you’ll save money. But do it wrong and it could end up costing you more than if you never transferred your balance at all.

Let’s take a closer look at what a balance transfer is and when it makes sense for your finances.

What is a balance transfer? Is it worth it?

You’ve probably received offers in the mail about balance transfers. Often, credit cards will offer free balance transfers at the beginning to qualifying customers.

So, what is a balance transfer, exactly? Well, these cards will let you transfer your balance from an old credit card onto a new one. This transfer is helpful if your old card has a high interest rate but your new card has a low one.

The new card might have no interest at all, since many cards offer a promotional period of 0% APR. With no interest to worry about, you’ll be able to pay down your credit card debt faster.

But you have to be careful with this approach, as it has a few pitfalls. For one, your 0% promotional period will come to an end someday.

If you still have a balance, you could be left with a higher interest rate on it than when you started. Second, balance transfers sometimes come with fees, which could further add to the amount you owe.

A balance transfer can be a savvy way to deal with credit card debt, but you have to go about it in the right way. If you want to transfer your credit card balance to save money and pay off your debt faster, follow these six steps.

1. Find out your credit score

The better your credit score, the more likely you’ll qualify for a credit card that will make a balance transfer worth it. Most credit companies look for good or excellent credit before approving you for a card with 0% introductory APR.

That’s not to say you can’t get a low-rate card without a high credit score. But you need to know which of the credit score ranges you fall into so you know which credit cards to apply for.

After all, there’s no point applying for cards requiring excellent credit if yours is only fair. You’ll likely just get denied.

Plus, every time you apply for another credit card, it will be listed as a hard inquiry on your credit report. That alone could lower your credit score.

You can find your Vantage 3.0 score for free through Credit Karma. Several credit card companies will also show you your FICO score for free.

If your score is low, you can take steps to increase your credit score before applying for a credit card with a no-interest promo period.

Paying your bills on time, lowering your debt-to-income ratio, and using a secured credit card, for instance, are all steps you can take to improve a poor credit score.

2. Compare the best balance transfer offers

Before applying for a new balance transfer credit card, do your homework. Compare multiple credit card offers to find the one with the best rates and terms.

First, take a look at the APR attached to the card. Find out what its introductory APR is, as well as how long it lasts. Then take a look at what your APR will be when that promotional period is over.

Find out if the card has an annual fee, as well as what it charges for balance transfers. Balance transfer fees are often listed as a percentage of the amount you wish to transfer.

Finally, pay attention to the card’s eligibility requirements. Make sure your credit score is strong enough to qualify before applying so you’re not disappointed.

3. Do the math with a balance transfer calculator

Just because the APR on a new card is lower than the one you already have doesn’t necessarily mean it will save you money. Transfer fees and carrying a balance beyond the introductory APR could actually end up costing you more in the long run.

So before doing a balance transfer, make sure to do out the math with a balance transfer calculator. These handy online tools will ask for the following details about your current credit card and the new one you’re considering:

Current card details

  • Balance
  • Interest rate
  • Annual fee
  • Amount of your monthly payment

New card details

  • Transfer fee
  • Introductory APR
  • Length of introductory APR
  • Regular APR
  • Annual fee
  • Amount you plan to pay every month

The calculation will reveal whether or not you’ll be able to pay off your balance in full before the promotional period ends and interest kicks back in. If not, it should show which option is more affordable in the long run, whether that’s sticking with your current card or transferring your balance onto the new one.

4. Consider your current cards

A balance transfer to a new credit card isn’t the only way to save money on credit card debt. You might be able to snag a lower rate from your current issuer.

Believe it or not, you can call and ask for a lower rate. They might say no, but they could be willing to negotiate if your account is in good standing or your credit score has increased since you first took out the card.

You might also tell them you’re transferring your balance to another card with a lower APR to see if they will match the rate. Even if they don’t, you can go ahead and make the balance transfer, as long as the fees aren’t too burdensome.

Ultimately, your goal is to save money on interest, so you can choose the path that works best for your individual situation.

5. Pay off the balance before the introductory period ends

If you’ve done the math, you know exactly how much you need to pay on the transferred balance every month in order to pay it off before the introductory APR ends. Stick with it!

Write down your spending plan so you have a clear picture of your income and expenses. Make sure you’re prepared to make your payment each and every month.

Skipping just one month could set you back, not to mention increase the burden for future you. Before you know it, you could get behind on your balance and fail to pay it off in time.

If you did all the work to do a balance transfer, keep up your motivation and chip away at that balance before your 0% APR period comes to a close.

6. Avoid overspending on the new card

Along with balance transfer fees, another possible pitfall of opening a new credit card is overspending. After all, you’ve just opened a new line of credit, so you could theoretically go on a major shopping spree.

Of course, that would completely defeat your financial goal, which is to pay down your transferred balance, not pile on more debt.

This isn’t to say you shouldn’t be using your credit cards, but you have to be careful to pay off any new transactions from month to month. If you’re using the same card, you should also revisit the balance transfer calculator to factor in these additional expenses.

That way, you’ll have a long-term understanding of repayment and avoid racking up even more debt.

A note of caution about returning your card to zero balance

When you transfer your credit card balance from one card to another, your old card will end up with a balance of zero. If you’re worried you’ll still overspend, you might cut up the old card and close that account.

Keep in mind, though, that this could ding your credit score by reducing your credit utilization ratio. Another option is to keep the card open and just make purchases every once in a while, so that your issuer knows the card is still active.

But again, if overspending is a concern, take steps to reform your habits. A balance transfer can only go so far toward helping you clear away debt.

At the end of the day, you’ll need to find effective methods for avoiding credit card debt in the future.

Meredith Simonds contributed to the reporting for this article.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.