The Ultimate Guide to Credit Card Balance Transfers

I’ve saved thousands of dollars in interest using balance transfer cards. In this guide, we cover what they are, how they work, and how you can use them.

what is a balance transfer

Ah, 0% balance transfers. You may not realize it, but these promotional credit card offers are one of the best possible ways to get out of existing debt faster, and for less money.

In fact, I have saved thousands of dollars in interest charges by using 0% credit card balance transfers. Now, I have over $100,000 in available credit on our credit cards. All this is simply from taking advantage of these 0% balance transfer offers over the years.

By the way, here are some excellent 0% balance transfer credit cards, some with 0% for 18 months.

You can save so much money with balance transfers–and get out of debt even faster than you thought possible. So I thought I would share with you this ultimate guide to using 0% balance transfer credit cards.

The Guide to Balance Transfer Credit Cards

There are a few keys to getting the most out of your balance transfer offers. Let’s talk about these offers. We’ll also cover how you can use these promotional products to not only clear debt, but improve your credit and boost your bank account.

Watch for Fees

Most 0% balance transfer credit cards charge a fee for the balance transfer. It’s important to be aware of this added expense. Although you can find some that don’t charge a fee, they’re far less common.

Make sure you read the fine print so you know what fees the credit card issuer will charge. The standard is usually 3% of the transferred balance or $5-10, whichever is higher. However, I’ve seen some balance transfer offers that charge such a high fee, it turns a 0% offer into something more like six or eight percent.

Even the 3% fee can eat away at the feasibility of a 0% APR transfer. If you’re within a couple of months of paying off a debt anyway, the fee may be more than you’d pay in interest on your existing account. Be sure you look at the numbers before jumping into one of these offers.

Don’t Make Things Worse

Never ever use a 0% balance transfer to increase the total amount of your debt. This is a recipe for disaster. It turns a great offer into a financial nightmare.

I’ve seen folks transfer debt to a 0% credit card only to charge up additional debt on their other credit cards. The only reason you should use one of these offers is to pay off that debt faster and for less money by eliminating the monthly interest payment. Once you transfer the balance owed, cut up the other credit card or lock it in a safe. Do not add more debt to that now-clean slate.

This can be tempting and, frankly, easy to do. This is especially true if you’re living beyond your means each month and digging a debt hole. If this is the case, you may want to implement a bare-bones budget until you get your spending to a level that’s below your income.

If you don’t think you can trust yourself to leave the now-zero-balance account alone after transferring your debt, perhaps a balance transfer isn’t right for you right now. Work on your budget for a while to cut expenses. Then revisit the offer in a few months’ time. Then, you’ll be ready to really capitalize on the perks of a balance transfer without making your financial situation worse.

Know the Rules

If you plan to transfer an existing balance to a new card offering a promotional interest rate, know the limitations of your offer.

Some credit card companies require you to transfer those balances within a certain period of time in order to qualify for the introductory offer. Even if your balance transfer offer is “0% interest for 12 months,” that doesn’t mean that you can actually transfer balances over for the duration of the offer.

For most companies, you will have to initiate a transfer from the existing debt to the new account within the first 60-90 days of opening your account. However, I’ve seen limits as low as 30 days.

If you try to transfer a balance after the new company’s stated timeline, you will be seriously disappointed. Not only will you pay the balance transfer fee mentioned above, but you won’t even get to take advantage of your 0% promotion. You will have transferred your debt from one company to another, with little or no benefit at all (and an added fee to boot).

Have an End-Plan for Your Offer

All good things must end, and this applies to 0% APR offers, too. It’s important, then, to have a plan for any remaining balance left over when you reach the limit of your balance transfer period.

Have you ever wondered why credit card companies are willing to offer 0% interest for periods as long as a year (or more!)? They know many people will leave a balance on the credit card after the introductory rate expires. So they can make money on those charges from there on out.

This is why it’s critical to plan your payments so that the balance is paid off before the introductory period expires. If that’s simply not possible, you need to know ahead of time what you’ll do with the remaining balance when that 0% offer expires.

For us, this usually means transferring the balance back to our home equity line of credit, which charges a very reasonable and tax-deductible rate. If you plan to leave the balance on the card, check out the next commandment.

Always Know the Interest Rate Moving Forward

If you plan to leave the remaining balance on the card after the introductory rate expires, know what the adjusted rate will be before transferring the balance in the first place.

We currently have 0% introductory rate credit cards that will charge about 7.5% when the introductory rate expires. While we don’t plan to leave the balance on the cards at that time, 7.5% interest would not be the end of the world. However, these rates often depend on your creditworthiness and the card in question.

Some companies will charge non-promotional interest rates in the 20s on balance transfers. This may put you right back into an unfortunate debt situation. Know what you’re going into, and plan your payments accordingly before the promotional period ends.

Don’t Use 0% Offers to Overspend

When we recently purchased new couches for our living room, the furniture company offered us 0% interest for 12 months. We turned down the offer.

I knew that with a 0% offer, we would be inclined to purchase more furniture than we really needed. It would have been too tempting to have that interest-free buffer and not feel the pinch of what we were spending right away. So instead, we paid cash.

This speaks to another principle we follow: never borrow to buy consumer goods.

If you decide to take advantage of a store’s 0% interest offer, be sure that you don’t spend more than you would have if you were paying cash. Set a budget before you even walk in the door, and don’t reach beyond it.

Also note that for some of these retail offers, the interest is considered “deferred.” This means that you will pay 0% interest only if you pay off the balance in full before the period expires. If you still have a balance remaining after the promotion ends–even if it’s $5–you’ll pay interest on the balance moving forward. But you’ll also owe the company the full balance of the deferred interest, too.

Shop Around for 0% Offers

Not all 0% balance transfer credit card offers are alike. Look at various offers for which you qualify before settling on one and applying.

Some companies charge different balance transfer fees. While there is a “common” fee that we often see, some offers are outliers. Know what you’ll pay, and do the math before you sign up.

Also, the introductory 0% rates can last for varying periods of time. I’ve seen some last for as short as three months, while others have extended to 18 months. Know what you need in order to realistically pay off your balance before the period ends, and go with the card that best suits you.

Purchase vs Balance Transfers

It’s important to understand the difference between a 0% interest rate on balance transfers and a 0% rate on purchases. Companies offer both, sometimes on the same card. So pay attention to which you’re getting and the promotional period for each.

Some credit cards offer a 0% introductory rate on purchases only, not balance transfers. Other cards offer a 0% rate on both balance transfers and purchases. Of the cards that offer both, some have promotional periods of the same length and others vary. For instance, you might get 0% APR on balance transfers for 12 months, but only get 0% APR on purchases for nine months.

As you are shopping for the best 0% credit card for your needs, make sure you understand this difference.

How Payments Are Applied

Thanks to the CARD Act of 2009, this is less of a concern than it used to be. However, you should still be aware of how credit card companies will apply your payments to your debt balances. This is especially true if you plan to transfer debt to a card and then use it for purchases, too. Sometimes you’ll get a 0% APR on balance transfers but pay the regular interest rate for purchases. So you need to understand how your payments are applied to these debts.

Credit card companies used to be able to use payments towards debts with varying interest rates in any way they chose. So they usually applied extra payments to the lowest interest rate first. This kept the debt with the higher interest rate around longer. Of course, this earned the company more interest payments and made it harder for consumers to become debt-free.

Now, though, companies are limited in how they can apply payments. If you send in more money than the minimum payment, companies must apply the excess to the balance with the highest interest rate.

However, it’s important to note that minimum payments are often still skewed in the credit card companies’ favor. The minimum amount due each month can be — and usually is — applied to the balance with the lowest interest rate first. This means credit card companies will still earn more money off of your high-interest balances. The only way to pay down that higher-interest balance faster is to pay more than the minimum amount due each month.

That’s why we keep our 0% balance transfer cards separate from credit cards we use on a monthly basis. In fact, I have cut up our 0% balance transfer cards to make sure we don’t accidentally use them for a purchase.

Look for Cards That Also Offer Rewards

Several credit cards with 0% introductory rates also offer excellent rewards packages. Depending on whether you travel a lot or want cash back from purchases, you’ll find credit cards that offer a vast array of rewards.

If you’re not earning rewards on the money you spend each month, you’re leaving free cash on the table!

Keep in mind, though, that for many of these cards, balance transfers won’t qualify for rewards. Also, the best cards out there–in terms of rewards and promotional offers–often require great credit.

Even at 0% Interest, It’s Still Debt

I have taken advantage of 0% credit cards and saved a lot of money as a result, so I’m certainly in favor of these types of offers. However, it didn’t change the fact that we still had debt at the end of the day.

Credit cards can be an awfully tempting and destructive privilege, so use even 0% credit cards with care. It’s important to have a plan in place for getting out of debt as fast as possible. Use 0% offers in combination with systems like the debt snowball. Implement a tight budget. Earn extra cash from a side hustle, and cut your monthly expenses. Do anything you can to get out of debt faster.

If you’re considering using a promotional card offer to pay down existing debt faster (and for less), here are some of the best 0% balance transfer credit cards available. Just use them wisely!


Topics: Credit Cards

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9 Responses to “The Ultimate Guide to Credit Card Balance Transfers”

  1. Great article.

    The only point I’d add is to consider the implications on a credit score of continuously opening new credit accounts.

    While there may be some advantage of increasing available credit to balance ratios, there would be an impact on the score for each inquiry/new account opened.

    – Dave

  2. Aplying #3 finally dawned on us! We do have a balance on our HELOC, and I missed several months of saving interest by not processing that I could move part of the HELOC balance to such a card knowing I would transfer it back when necessary.
    When I consider arbitage, I now know to run the numbers on a Bankrate calculator to insure I’m not wasting $ or my credit rating. Offers seem to have slowed down and are trickier (at least for us), but even an increase in a credit limit along with a particular offer can be exploited if you run the numbers, etc. and are prepared to act prudently.
    Thanks for the article, and for pulling together all those CC offers!

    • stngy1, thanks for the comment, and my experience is the same in terms of the decrease in the number of offers. I’ve also seen a lot of offers with ridiculous balance transfer fees.

  3. Mike, you could make money not only on the 0% offer through a U.S. card, but also through the exchange rate as the Canadian currency clobbers the dollar. Is that Looney or what?

  4. credit card for fair credit

    First of all, how it works is basically any kind of car service you perform on your registered vehicle on the card, as long as you fill out a form and send in your receipts (which you’ll never get back), they will credit you for the full amount sans tax. Basically, free car service. In my case, I got an oil change and it came out to be 53. xx with tax included. For some reason, i thought they would only refund a certain percentage but apparently they refund you the whole amount and I cannot find any sort of…

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