What is a Balance Transfer and How Does it Work?

Managing credit card debt can feel overwhelming, especially when interest charges keep growing faster than your payments. A balance transfer can be a smart way to ease the pressure, save on interest, and pay off what you owe more efficiently. Let’s break down what a balance transfer is, how it works, and whether it is right for you.

Key Takeaways

• A balance transfer lets you move high-interest debt to a card with a lower introductory APR.
• It can help you save money and simplify repayment but pay close attention to fees. A 0% rate isn’t always the better deal.
• The best results come from careful planning: pay on time, avoid new charges, and clear the balance before the promo rate ends.
• Your credit score and other criteria can impact approval and credit limit, depending on the lender.

Jump To:

• What is a Balance Transfer?
• How Does a Balance Transfer Work?
• Key Terms to Know
• Pros and Cons
• Tips for a Successful Transfer
• When a Transfer is a Good Idea
• Things to Avoid

What Is a Balance Transfer?

A balance transfer** means moving an existing credit card balance (or multiple balances) to another credit card—usually one offering a lower introductory interest rate. Some issuers also periodically offer reduced rate balance transfer promotions to existing cardholders.

A balance transfer can be a great tool for debt consolidation if you consistently carry a balance on your credit card. This strategy gives you breathing room to focus on paying down what you owe rather than watching interest pile up.

Example**: Say you have $5,000 on a card charging 23% APR. You could transfer that balance to a card with a 2% APR for 18 months, paying only a 3% transfer fee ($150). Some lenders waive this fee, saving you even more money. This can save you hundreds in interest if you pay off the balance within the promotional period.

This is an example only. Use a balance transfer calculator to see how much you could save.

You’d save roughly $800–$900 in interest over 18 months by moving $5,000 from 23% APR to 2% APR, even after the 3% transfer fee, assuming you pay the debt off over those same 18 months with fixed monthly payments.**

How Does a Balance Transfer Work?

Here’s how the process typically goes:

• 1. Find a balance transfer offer from a credit card issuer with a low intro APR.
• 2. Apply for the new card and get approved (contingent upon your credit score and any additional lender criteria).
• 3. Request the transfer by giving your new issuer details of the account and amount you want to move.
• 4. Wait for the transfer—it can take up to 30 days, but this depends on the lenders involved.
• 5. Pay down the balance on your new card within the promotional period to minimize or avoid interest.
• Note that your old credit card stays open unless you close it yourself.

Key Terms You Should Know

• Balance Transfer Fee: A fee some banks charge to move your balance over. Typically 3%–5% of the amount you transfer but varies by lender**.
• Introductory APR: A temporary low interest rate offered for a limited time.
• Regular APR: The standard annual percentage rate that applies once the intro period ends.
• Promotional Period: The time window for the reduced rate—often 12–18 months but varies by lender.
• Credit Limit: You can’t transfer more than your new card’s available credit line.

Pros and Cons of Balance Transfers

Pros:

• Save money by avoiding high-interest payments.
• Combine multiple debts into one payment.
• Pay off balances faster if you use the low-rate period well.

Cons:

• You may still pay a transfer fee upfront.
• The interest rate jumps after the promo period ends.
• A higher credit score is usually needed for top offers.
• Missing even one payment can cancel your promotional intro rate, depending on the lender you choose.

Tips for a Successful Balance Transfer

• Compare offers carefully. Always factor in fees and promotion durations.
• Pay on time, every time. Missed payments can negate the benefits.
• Pay off the balance before the intro rate ends.
• Keep old accounts open temporarily to help maintain your credit score.

When Should You Consider a Balance Transfer

A balance transfer is most effective if:

• You consistently carry a balance and your current credit card has a high interest rate. (Some credit cards carry an interest rate of 30% or more, and have been as high as 79.9% on some cards**!)
• You’re confident you can clear the balance during the introductory APR period.
• The transfer fee costs less than the interest you’d otherwise pay.

If you tend to keep a balance or might add new charges, it might not be the best option.

Common Mistakes to Avoid

• Ignoring the fine print about fees and interest rates.
• Forgetting when the promo period ends.
• Missing payments, which can trigger penalty rates, depending on the lender you choose.

Benefits of Balance Transfers with Community First Credit Union

If you are looking for ways to reduce or pay down debt, a balance transfer may be a great option for you. Community First Credit Union offers several benefits:

• Pay no balance transfer fee!
• Pay a lower promotional interest rate, or APR*, during the 12-month introductory period (based on creditworthiness)
• After the introductory period, our APR is nearly half of what many banks charge. Learn more in our Visa^® Credit Cards Disclosure.
• Quick approvals and transfers
• A dedicated team ready to assist you and tailor a solution that works for your situation

If you aren’t sure if a balance transfer is right for you, our dedicated team is here to help you find a solution that works for your unique situation. Learn more about our credit cards, and debt consolidation options. To speak with a Community First team member, call 904.224.9077.