When to Consider a Balance Transfer Card

Published January 2021

Sometimes, transferring a balance from one credit card to another makes good financial sense, but sometimes it doesn't. If you are wondering if a balance transfer card is a good solution in your particular situation, here is what you need to know about this potential debt relief method.

How Balance Transfers Work

In theory, balance transfers might be a way to save money on credit card interest and potentially pay off your credit card debt sooner. For instance, suppose you owe $5,000 on a credit card with an APR of 18.9%. Your credit is good, and you receive an offer for a balance transfer card with an introductory APR of 0% for 12 months with a 3% transfer fee. After the introductory fee, your standard APR will be 14.9%. Would it be a good idea to take that offer?

In this case, the answer could be "yes." Here's a look at the analysis:

Promotional period interest and fees(Source: The Motley Fool)

This balance transfer meets the first requirement for a good balance transfer: it makes common sense financially.  Choosing this balance transfer option will net you $795 in savings the first year and $17 per month in savings after the promotional period is over. You can save even more than that by applying the $795 you save the first year back to your credit card balance, reducing your debt further, faster.

When Balance Transfers Work for Debt Relief

For a balance transfer to be a good debt relief option, a few additional requirements must be met. 

  1. You have to qualify for a balance transfer deal: Not everyone does. Your financial situation should be fairly stable if you intend to use this option. Your credit score should be good to excellent, and your credit utilization ratio should be below 50 percent.
  2. You have to find a credit card with a lower interest rate than you currently have: Preferably, you want to find a card with a 0% introductory rate if you really want to make progress in defeating your debt. Look for one that offers a long introductory period as well, since the longer the introductory period is, the less interest you end up paying overall.
  3. You have to find a payment you can live with: Pay special attention to what happens after the introductory period. Some credit cards may offer a 0% interest rate, but then charge an exorbitant interest rate after the introductory period. Don't let that happen to you.

To figure out whether a balance transfer would make sense for you, consider and compare the variables that depict your current and expected post-transfer situation. 

These variables are: 

  • Your current APR
  • Your introductory rate and the subsequent APR on the new card 
  • The length of the introductory period
  • The cost of the transfer (usually 3-5% of the transferred amount)
  • The maximum transfer amount
  • Your current and future monthly payments

When Balance Transfers Don't Work for Debt Relief

The biggest variable of all, however, may be something else entirely. It is you and your determination to get out of debt. That is because despite the advantages it may offer, a balance transfer is nothing more than the act of paying off one credit card with another. 

That means that, ultimately, even if you find a great balance transfer deal, if you do not exercise financial discipline in the use of your credit cards (both the old one and the one you open for the balance transfer), you may find yourself in deeper debt than before.

Because getting a balance transfer card gives you access to another line of credit, it is possible that you might be tempted to use that credit card for something other than just the transferred balance.

You Have Other Debt Relief Options to Explore

If you find that a balance transfer does not make financial sense and that your credit card debt is out of control, don't hesitate to consider other credit card relief options

If you owe $10,000 or more in credit card debt, debt settlement is a good option to consider. Call a ClearOne Certified Debt Specialist today at 866-481-1597. They can help you explore your options and learn how much debt settlement can save you. Get a free savings estimatetoday.

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Topics: Debt Consolidation