What Is a Balance Transfer Credit Card? How To Do Balance Transfer Credit Cards

A balance transfer is a process that lets you move debt on a credit card or from a loan to a different credit card.

You’ll still have to repay the debt, but a balance transfer could help you combine multiple payments onto one card. In some cases, it can reduce the amount of interest you’ll pay, assuming the balance is transferred to a lower interest card.

Some balance transfer cards offer an introductory 0% interest rate on the transferred balance, giving you several months to make payments without being charged any interest at all on it.

But it’s important to understand the process before you sign up for a balance transfer. Sometimes, a balance transfer can backfire and end up costing you money.

When you move the outstanding debt you carry on one credit card to another card, usually a new one, you are taking advantage of a balance transfer. Credit card balance transfers are typically used by consumers who want to move the amount they owe to a credit card with a lower interest rate, fewer penalties or benefits, such as rewards points or travel miles.

Many credit card companies offer free balance transfers in order to entice people to choose their products over a competitor's. As an additional sweetener, they often offer a promotional or introductory period of anywhere from six to 21 months (federal law requires at least six), in which no interest is charged on the transferred sum. With proper diligence, savvy consumers can take advantage of these incentives and avoid high-interest rates while paying down debt.  But they need to study offers carefully, as many credit transfers involve unexpected charges and other conditions that impact those great-sounding terms.

What is a balance transfer? Understanding balance transfers

A balance transfer is where part or all of the debit balance (or debt) you owe to another lender is transferred from one credit or store card to another, usually to save on interest repayments.

A balance transfer credit card can be a good way to keep track of your balance and payments with everything in one place.

If you’ve recently compared credit cards and discovered one that charges you less interest, transferring debt from one credit card to the other could save you money. That’s the main benefit of a balance transfer.

By reducing the overall cost of what you owe, a credit card balance transfer could help you pay off your outstanding balance sooner, and even reduce your outgoings. Transferring high interest balances to a credit card which features a promotional offer or lower rate could save you money on interest repayments.

A balance transfer is when you pay off the balances on existing credit cards or loans by transferring them to another credit card account. (In some cases, you may be charged a fee to complete the balance transfer—typically a percentage of the transfer balance. More about that later.)

You can only transfer an amount up to your credit limit on the new card. So if your credit limit is $5,000 on the new card and you want to transfer a balance of $6,000, you will only be able to transfer up to $5,000 (including any balance transfer fee) of that existing balance.

How do balance transfers work?

By transferring high interest balances to a credit card which features a promotional offer or lower rate, you could save on interest repayments, although remember that handling fees might apply to any transfers you make.

Credit card providers typically promote interest-free periods on their card offers, which could help you save even more and pay off your balance faster – as long as you can pay it off during the initial interest-free period.

How do I complete a balance transfer ?

• When you respond to a balance transfer offer, you’ll indicate who you want to pay, the account numbers, and how much you want to transfer.

• Once you’re approved for the balance transfer, the credit card company contacts your creditors or billers on your behalf and pays them the amount you indicated. It can take up to two weeks for this process.

• If you have any payments due before that time, you’ll want to go ahead and make those payments by their due dates to avoid late fees.

Checklist for transferring a balance

1.       Decide how long you need to pay off your credit card. You can work this out by dividing your balance by the amount you can afford repay each month. For example, if you have a £2,000 debt and can afford £100 per month, it would take 20 months to repay.

2.       Use our comparison tool to find the best deal for you. Look for cards with a 0% balance transfer period that is long enough for you to repay the balance in full.

3.       Check if the balance transfer card comes with a large fee. This will be charged as a percentage of the amount you transfer (though some cards do have no fee).

4.       Choose the card with the cheapest fee that offers a 0% transfer fee long enough to pay back the whole balance - and do not use the card for purchasing anything.

Understanding Balance Transfer Offers

While people might say “balance transfer credit card,” a more accurate phrase description is “credit card offer favorable to balance transfers.”

Pretty much any credit card will let you transfer a balance away from it, and many credit cards will let you transfer a balance to them.

Some credit cards, however, are designed to have terms that are more favorable for incoming balance transfers due to their:

  • fees on incoming balance transfers
  • regular interest rate on balance transfers
  • limited-time low introductory APR on balance transfers

Fees for balance transfers

Balance transfers are not usually free.

Even those offering an introductory zero percent interest rate generally come with a cost in the form of a balance transfer fee. Most credit card issuers charge between 2% and 5% of the balance as the fee for the transfer, with a minimum fee of about $5.

You will usually see this fee show up separately from the transferred amount on the statement of the card you transferred the balance to. Some balance transfer offers waive the fee if the transfer is made within a certain number of days of opening the card.

Choosing the right balance transfer card

When choosing a card for a balance transfer, you’ll want to do your research. Many cards will accept transfers, but the action makes sense only if it saves you money. You’ll want to know:

  • The balance transfer fee: You usually will pay a fee of 3% to 5% of the amount you plan to transfer. For example, if your balance is $5,000, a 3% fee would cost you $150. A few cards have no balance transfer fees.
  • The interest rate on transferred balances: Credit cards that are specifically designed for balance transfers have a lower introductory rate for transfers, and 0% intro periods are common
  • The length of the promotional period: A balance transfer should give you breathing room to pay down your debt, so look for one with a long 0% period. At the end of the promo period, the rate goes up by a lot — usually to the same rate the card charges for purchases, so you’ll want to have your balance paid down by then.
  • The annual fee. A card with no annual fee is best for transfers

A good place to start is with Nerdwallet’s best balance transfer cards. You’ll notice that the best balance transfer deals generally are available only to people with good or excellent credit. As you consider your options, keep these questions in mind:

  • Will the amount you save in interest be higher than the balance transfer fee?
  • Can you pay off the balance you’re transferring during the 0% period?

When should you consider a balance transfer?

A balance transfer might be a good idea if, for example …

  • You have debt with a high interest rate. A balance transfer may save you money by moving debt from a high-interest-rate account to a lower-interest-rate account.
  • You don’t want to juggle multiple payments each month. You may be able to use a balance transfer credit card to combine debts, so you’ll have fewer monthly payments to track and manage.
  • You get a good promotional offer on a balance transfer credit card. An introductory 0% interest rate on balance transfers could help you pay down your debt faster by reducing the amount of interest you’ll pay on the transferred balance.

What types of balance can I transfer?

Credit cards can be used for balance transfers from many different kinds of accounts.

Other credit cards are the most obvious choice, but auto loans, school loans, personal loans, and other installment loans can be eligible as well.

You won’t be able to transfer a balance between cards from the same card issuer. So you can’t transfer a balance from one Chase card to another, for example, or one Bank of America card to another. Credit card issuers don’t want you to take advantage of them by just transferring a balance back and forth between their cards.

Other than that, most credit card issuers will allow you to transfer a balance from practically any account that requires a monthly payment. But when it comes to installment loans, it’s not necessarily a good idea to transfer the balance just because you can.

This is because installment loans don’t hurt your credit much compared to credit card debt. Even if you have a very large installment loan, it’s better than having that debt be on a credit card. Installment loans also usually have lower interest rates than credit cards anyway. So most of the time it’s better to just let your installment loan be, and pay it off as quickly as you can.

In some cases, however, it might be a good idea to transfer an installment loan to a card with a 0% APR. This could be true if your installment loan is very small, or has a very high APR. You may be able to save some money by paying it off on the card instead. You’ll have to do some math to figure out the total amount you’ll end up paying in each case.

Balance transfers sometimes come with certain terms and limitations. American Express, for example, requires the account from which the debt is coming to be in your name. Be sure to check the terms that come with your card to learn exactly what you can do, and contact your card issuer if you have any questions.

Should I transfer my balance?

Getting a card with a zero-interest introductory rate, especially if that teaser rate is good for 21 months, as some are, can save hundreds of dollars in interest and help you pay off your balance much sooner. As long as you’re not seen as risky by creditors, there may be some good balance transfer offers available to you.

Someone who has gone through a period of unemployment or underemployment, for example, but now has a better paying job and can pay off the debt, could benefit from a balance transfer offer.

However, people with poor credit scores or those going through a period of financial distress may not be able to qualify for a new credit card with favorable balance transfer terms. If this describes you, you may need to consider other options like credit counseling or perhaps even bankruptcy.

It’s up to you to decide whether a balance transfer offer is a good idea in your situation. Like many tools in your financial toolbox, this one is sharp. Develop a strategy for using it to get what you want and wield it with a healthy supply of discipline.

Even if you can qualify for a balance transfer offer, consider your plan for paying down the debt before you pull the trigger. You may put your financial future at risk if you transfer a balance to defer interest and hope your situation will improve without a solid plan to pay off your debt.

If you’re considering transferring a balance away from an installment loan, think carefully. This isn’t typically necessary, even if the loan is very large. In most cases it will be better off as an installment loan, as long as the APR isn’t too high.

Tell me more about balance transfer fees.

Credit card balance transfers may charge a balance transfer fee—usually 3% to 5% of transferred debt. 

What are the benefits of a balance transfer?

• A low balance transfer APR can help you catch up on your existing debt. That’s because you can get a low promo or introductory APR to pay down that balance for a defined time frame, like 12 months.

• A low promo or introductory APR may also help cut the time it takes to reduce your debt. When you pay high APRs, a lot of your payment goes to the interest rather than paying down the principal balance itself.

• Finally, instead of paying multiple creditors on multiple due dates, consolidating all of your balances onto one card with a low or 0% promo or introductory balance transfer APR means you only have to keep track of one payment a month—and not multiple cards with multiple due dates.

What types of existing balances can I transfer?

You can transfer the existing balances off of your store credit cards, gas cards and other cards. Just remember, when you are approved for a credit card, you will be given a certain limit and you can only transfer up to that amount – be sure to account for any balance transfer fees. The typical balance transfer fee in 2017 was 3%. 1

What are the different kinds of balance transfer rates available?

Credit card companies offer incentives—like a low interest rate on purchases and balance transfers—to encourage you to transfer your business to them, and hopefully establish a long-lasting relationship. 

The best balance transfer rates could be offered by credit card companies to new cardmembers, and usually are 0% or low APR offers for an introductory time period.

When transferring your credit card balance, it is important to remember that this intro rate is temporary. The duration usually varies from 6 to 18 months and will be specified in the offer.

Balance transfer offers are sometimes available on existing credit card account(s) with promotional APRs, which also apply for a defined time period. Contact your credit card company for more details.

When will I pay the standard balance transfer rate?

You’ll pay a regular rate, or a standard purchase APR, on balance transfers when: 

• Your introductory or promotional time period expires. After this period, the remaining transferred balance is generally subject to the standard purchase APR for the card. 

• If you want to make a balance transfer to an existing card and don’t have a promotional balance transfer offer, you may be able to pay the standard APR for balance transfers as disclosed in your Cardmember Agreement.

What else should I consider before accepting a balance transfer offer?

• Avoid “chasing” 0% balance transfer offers—or bouncing balances from one card to another. Consider finding a great balance transfer offer and making a plan to pay down the debt once and for all.

• Determine whether the Intro APR offer applies only to the balance transfers, regular purchases, or both. Check to see if there is an introductory balance transfer fee as well.

• Balance transfers by themselves do not automatically close an account. If you want to close a credit card account after you transfer the balance from it,  you need to contact the creditor to do so.

How to do a balance transfer

When applying for a new balance transfer credit card online, most providers will ask if you would like to make a balance transfer as part of your application. Simply fill in the details for any cards you’d like to transfer the balance from and subject to acceptance, the lender will pay off your old balance and transfer it to the new credit card.

If you already have a credit card, your provider might allow you to transfer a balance to your card, subject to acceptance and your credit limit. At MBNA you can request a balance transfer online, through our app, or by giving us a call.

Remember: you’re still responsible for the balance, but it’s now owed to a new and different provider. You may also be paying a different rate and there is usually a fee to transfer a balance. You’ll need to make at least the minimum payment each month, but you won’t usually be charged extra if you’d like to pay more each month to clear your balance faster.

How long does a balance transfer take?

For existing customers, approved transfers will reach your credit card account the next business day, unless you make your request after 6pm, or on a weekend/bank holiday, when it will take an extra business day. That’s as long as your request passes our normal security checks, and there aren’t delays with your existing credit provider.

Balance transfer fees

You may be charged a handling fee for any transfers you make, which will normally be a percentage of the balance you’re transferring. As an example, if you want to transfer £1,000 and the balance transfer fee is 3%, it would cost you £30 to make the switch.

Remember, it’s always better to pay more than your minimum payment each month in order to pay off any debts in the promotional rate period. If you make only the minimum payment each month, it will take you longer and cost you more to clear your balance.

Important to remember

All transfers are subject to our approval.

The lowest amount you can transfer is £100. The maximum amount you can transfer depends on your credit limit and any existing balance you may have on your account. The total transfer amount plus any balances already on your account and any transfer requests already made, cannot be more than 93% of your credit limit. This is to allow for future transactions on the account.

You cannot transfer balances between MBNA accounts.

Once the transfer has been processed you cannot cancel it and any fees cannot be returned.

Other lenders may charge a fee for settling a loan early.

Promotional offers: if you’ve taken advantage of a promotional offer, but you haven’t paid off the transfer amount in full before that offer ends, interest will be payable on the remaining amount at the standard interest rate applicable at that time.

Remember to stay within your limit and to make your monthly payments on time, otherwise you’d lose the promotional offers on your MBNA account and pay the standard interest rate instead.

0% interest cards explained

When you’re looking for a credit card with a lower interest rate, you may find some cards offer a promotional rate of 0% interest for a specific period of time.

Promotional 0% interest durations on balance transfer credit cards vary greatly, but can last for some months, giving you more time to clear your balance.

Whether or not you’re offered the full 0% interest duration promoted is likely to depend on your personal circumstances and credit history. If you’re an existing customer and request a balance transfer, it’s treated the same as applying for a new card and will be subject to approval.

That’s why it’s good to have an idea of your credit rating before you apply. Follow these tips to make sure your credit score is as healthy as it can be:

  • Don’t apply for multiple credit cards in a short space of time
  • Stay on top of other borrowing and don’t miss or make late payments
  • Register on the electoral roll and install a landline (if you haven’t already)

A balance transfer can be a great way to help you stay on top of your repayments, but before applying think carefully about what you can afford to pay back.

Balance Transfers to Existing Cards

You don't have to open a new account to do a credit card balance transfer; you can do it with an existing card, especially if the issuer is running a special promotion. Transferring a balance over to a lower interest rate card is often a good idea; even if your balance isn't paid off before the promotional rate expires on the balance transfer, the remainder will be paid off at a lower interest rate.

However, it can be tricky if you already have a balance on the card to which you are transferring more debt. Suppose that you owe $2,000 on your credit card with a 15% APR before you transfer a balance of $1,000 from your second card. The balance transfer rate you are offered is 0% for six months. You pay off $1,000 in six months, but because the 0% portion of your credit card debt is paid first, you will be charged at the 15% APR rate for six months for the $2,000 that was untouched by payments. Meanwhile, the card you transferred $1,000 from has a rate of 12% APR, representing a loss of 3% for you. You could cost yourself money in interest paid and transfer charges by using a balance transfer offer in these circumstances.

You also need to consider what adding a big sum to a card will do to your credit utilization ratio – that is, the percentage of your available credit that you have used – which is a key component of your credit score. Say you have a card with a $10,000 limit with a $1,250 balance. You are using 12.5% of your credit limit. Then you transfer $5,000, creating a total balance of $6,250. You are now using 62.5% of your credit limit. This 50% increase in your balance on one card could hurt your credit score, and ultimately cause the interest rate to rise on this and other cards.

Balance Transfer Versus Personal Loan

Some financial advisors feel credit card balance transfers only make sense if you can pay off all or most of the debt during the promotional rate period. After the promotional period ends, you are likely to face another high-interest rate on your balance, in which case a personal loan – with rates that tend to be lower, and/or fixed – is probably the cheaper option.

However, if the personal loan has to be secured, you may not be comfortable pledging assets as collateral. Credit card debt is unsecured, and if you default on it, it's unlikely that the card issuer will sue you and come after your assets. That changes when you open a secured personal loan; the company can take the asset to recoup its loan if you can't make the payments.

References:

[1] What is a balance transfer? Understanding balance transfers  https://www.mbna.co.uk/understanding-credit/understanding-transfers/balance-transfers/

[2] Understanding Balance Transfer Credit Cards https://www.discover.com/credit-cards/resources/balance-transfer/

[3] How Credit Card Balance Transfers Work https://www.investopedia.com/credit-cards/balance-transfer-credit-card/

[4] What Is a Balance Transfer, and Should I Do One? https://www.nerdwallet.com/blog/credit-cards/balance-transfer-3/

[5] What is a balance transfer? https://www.creditkarma.com/credit-cards/i/what-is-balance-transfer/

[6] 9 things you should know about balance transfer cards https://www.creditcards.com/credit-card-news/help/9-things-you-should-know-about-balance-transfers-6000.php

[7] Credit card balance transfers explained https://www.moneysupermarket.com/credit-cards/what-is-a-balance-transfer/

[8] How Credit Card Balance Transfers Work https://www.creditcardinsider.com/learn/balance-transfers/