{"id":13481,"date":"2024-02-05T15:53:27","date_gmt":"2024-02-05T21:53:27","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=13481"},"modified":"2025-06-06T10:08:51","modified_gmt":"2025-06-06T16:08:51","slug":"what-is-balance-transfer","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-cards\/what-is-balance-transfer.html","title":{"rendered":"What is a balance transfer and how does it work?"},"content":{"rendered":"\n
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A balance transfer is a way to move debt, and many people use this strategy to pay off debt faster and get lower interest rates.<\/p>\n\n\n\n

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law\u2019s editorial disclosure for more information.<\/a><\/em><\/p>\n\n\n\n

As of the end of 2022, the total household debt in the United States was almost $17 trillion. The total credit card debt was over $980 billion, with the average consumer credit card debt<\/a> at $5,910 per person. If you\u2019re one of the millions of Americans with credit card debt, balance transfer credit cards may be a way to help you pay the debt off faster and benefit from a lower interest rate as well.<\/p>\n\n\n\n

Although balance transfers can be beneficial, there are drawbacks as well. Here, we go over what balance transfer credit cards are, how they work and their pros and cons. With this information, you will be better able to make the right decision for your specific debt situation.<\/p>\n\n\n\n

What is a balance transfer credit card?<\/h2>\n\n\n\n

A balance transfer is when you transfer an outstanding balance from one account to another, such as from one credit card to a different card with a lower interest rate. In essence, a credit card balance transfer is a way of moving debt around. A balance transfer can be a great way to manage existing debt.<\/p>\n\n\n\n

If you transfer your balance to a new credit card<\/a> that features an interest-free introductory period, you could give yourself a window of time to pay off your debt without incurring additional interest. AARP advises<\/a> looking for interest-free periods of 12 months or more.<\/p>\n\n\n\n

What is a balance transfer fee?<\/h3>\n\n\n\n

A balance transfer fee is a cost the lender charges for you to move a debt over from another institution.<\/p>\n\n\n\n

This amount varies by lender, and many even waive balance transfer fees for an introductory period (typically 60 days) after opening an account. For example, Bank of America balance transfer credit cards<\/a> charge 3 percent of your transferred balance with a $10 minimum.<\/p>\n\n\n\n

How do balance transfers work?<\/h2>\n\n\n\n

Balance transfers work by allowing cardholders to \u201cpay off\u201d the balance on a card with a high interest rate, using a card with an interest rate that\u2019s lower, even if only temporarily.<\/p>\n\n\n\n

Many banks offer balance transfer credit cards specifically for people who are looking to take advantage of introductory zero-interest offers. While you still technically owe the debt you transferred, a balance transfer allows you to pay the debt off gradually with no added interest for a period of time.<\/p>\n\n\n\n

Be aware, however, that you are still required to make on-time payments. Your interest rate may increase once the introductory period ends, and issuers will apply it to an unpaid balance going forward.<\/p>\n\n\n\n

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How to choose a balance transfer credit card<\/h2>\n\n\n\n

Before choosing a balance transfer credit card, there are some steps you can take to help make the right decision for you. As with many financial decisions, it\u2019s a good idea to have as much information as possible before making a decision.<\/p>\n\n\n\n

Step 1: Comparison shop<\/h3>\n\n\n\n

First, compare details such as the balance transfer fee, interest rate, length of the promotional period, annual fee, credit limit and basic requirements to qualify. If possible, narrow your search down to cards that offer a 0 percent interest rate period. This type of promotion will allow you to put all the money you save in interest back into paying off your debt.<\/p>\n\n\n\n

If you already have multiple credit cards, you may be able to transfer your balance to one of them. This option can save you from a hard inquiry, which can temporarily hurt your credit.<\/p>\n\n\n\n

Step 2: Decide how much money to transfer<\/h3>\n\n\n\n

You can transfer part of your balance to a new card or all of it. However, transferring the full balance might not always be an option due to your new credit limit. It also might not be the best option if the card\u2019s fee is based on the transfer total. Determine what amount is best based on your credit utilization ratio, balance transfer fees and card transfer limits.<\/p>\n\n\n\n

Step 3: Apply for a new card (if not transferring to an existing card)<\/h3>\n\n\n\n

You can apply for most balance transfer credit cards online in just a few minutes. You\u2019ll need basic personal information like your address, Social Security number and annual income. Remember that this will result in a hard inquiry.<\/p>\n\n\n\n

Step 4: Review the terms and conditions<\/h3>\n\n\n\n

Whether you transfer debt to an existing card or a new one, the fine print on a balance transfer can be lengthy. Review it thoroughly so that you\u2019re aware of the potential fees, terms and official agreements of the transfer.<\/p>\n\n\n\n

Step 5: Follow through with your debt payoff plan<\/h3>\n\n\n\n

This is especially important if you have a temporary low- or a zero-interest period because you want to avoid paying more money in interest. Try to avoid making new purchases on the balance transfer card. Your priority is to get your debt under control. Consider using autopay to help you make payments on time and in full.<\/p>\n\n\n\n

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How to do a balance transfer<\/h2>\n\n\n\n

To transfer your balance, start by determining which balances are best to transfer if you aren\u2019t doing all of your balances. If you\u2019re only doing some balances, it\u2019s a good idea to start by transferring the balances from cards with the highest interest rates.<\/p>\n\n\n\n

After this, you can calculate the transfer fees. If there\u2019s not a cap on the amount that you can transfer, it\u2019s beneficial to transfer some of the larger balances because it can save you on interest, even though the fee may be higher. When you\u2019re ready to transfer the balance, just make sure the balance isn\u2019t higher than the maximum credit limit on the new card.<\/p>\n\n\n\n

Pros and cons of a credit card balance transfer<\/h2>\n\n\n\n

There are several potential advantages to using balance transfers to pay off credit card debt<\/a>. When done effectively, they can help you by:<\/p>\n\n\n\n