How a Balance Transfer Works Ultimate Guide [2020]

Taking interest out of your debt equation, even for a little while, can save you thousands of dollars and years of payments
Last updated Jun 10, 2020 | By Robin Kavanagh
How a Balance Transfer Works

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If you have any kind of debt on which you are paying interest, it’s always a good idea to investigate options that may help you pay less overall or pay off your debt sooner. Balance transfer credit cards can be a good tool for accomplishing both.

Just about any credit card that offers a 0% or low-interest rate can be worth investigating for the purposes of paying off existing balances you have with other lenders. By having a time period where you’re paying little-to-no interest, you’re able to chip away at your balances much faster, as more of your monthly payment will go toward reducing your debt instead of paying on interest.

This guide will introduce you to how balance transfers work, how you can use them to lower your existing debt, and what to look for when you’re researching options for balance transfer credit cards.

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How does a balance transfer work?

A balance transfer moves the balance from one type of debt to a credit card that has a 0% or low interest rate. You are basically opening a new, low-interest credit account to pay off other accounts you owe money on. By doing this, you reduce the overall amount of interest you pay on money you borrowed and you’re therefore able to pay off your debt faster.

Many banks allow you to transfer different types of debt to a credit card. These can include balances from other credit cards, personal loans, auto loans, mortgages, medical bills, home equity loans, payday and title loans, and business loans. What you can use a balance transfer credit card for varies from bank to bank, so it’s important to ask about this before opening a new credit card account for the purpose of a balance transfer.

To apply for a new balance transfer card, you will need to provide your contact information, Social Security number, annual income, and other standard information most credit cards require for opening an account. You may also need to provide information about the accounts you’re looking to transfer balances from. This can include the name of the creditor/payee, amount owed, and account numbers.

The bank issuing the credit card you’re applying for will review your application and decide how much your line of credit will be if you’re approved. If you provided specific account information in your application, the bank will directly pay those accounts the amount you specified. If you apply for the card first and then wish to initiate balance transfers, you can usually do so through your online account or by calling customer service.

If the bank can’t make a direct payment to a creditor you are trying to pay with your new line of credit, it may issue you a check or transfer funds to your checking account for you to use to pay your creditors.

How a balance transfer helps you get out of debt faster

When you have a high APR and make only the minimum payment every month, the majority of your payment pays the interest that has accrued during the month and only a small amount is applied to the balance. This makes paying off that debt take much longer and be more expensive, as you continue to rack up more interest every month.

To get out of debt quickest, you want to look for a credit card that has a 0% introductory interest rate (APR) on balance transfers. These introductory interest rate periods typically last for 12 to 18 months. Once you are approved, you can authorize the bank to make payments to one or more of your creditors to pay off the debt you owe.

Now that old balance is gone and your new credit card is carrying a balance — but your new 0% interest rate is applied to this balance. That means when you make your monthly payments, all of the amounts you’re paying is applied to the balance since you are incurring no interest fees.

As an illustration of how this gets you out of debt faster, consider these examples:

What it costs to pay off $5,000 in debt with a typical credit card

You have a credit card and you use it to make a $5,000 purchase. This card has a 17% APR (which is close to the average credit card interest rate).

Based on the terms of this credit card, your minimum payment is $120.83 for the first month (your minimum payment is the interest accrued plus 1% of the balance, in this case). Of that $120.83 minimum payment, $70.83 pays for the month’s interest and the remaining $50 is applied to the balance. Your new balance becomes $4,950.

If you continue to make a $120.83 for 18 months, you will pay off $1,016.95‬ of the balance. If you continue to pay this amount each month, it would take you 63 months or 5.25 years to pay off the total balance and you will pay $2,579.74 total in interest.

What it costs to pay off $5,000 in debt with a balance transfer credit card

Now, if the $5,000 balance is transferred to a 0% APR card and you pay the same $120.83 a month, at the end of the 18-month introductory period alone, you will have reduced the balance by $2,174.94‬‬. Not only that, but you will have saved $1,016.95 in interest payments during that same time.

By the time your card starts charging you interest, you will have a balance of only $2,825.06. For this example, we’ll say the APR will be 17%, the same as the card you transferred the balance from. Your minimum payment will drop down to $68.27. It would take you 63 months or 5.25 years to pay off the balance paying this amount and you’ll end up paying $1,457.60 in interest.

If you continued to pay the $120.83 per month, you will pay off the balance in 29 months or 2.4 years and only pay $630.72 in interest over the course of the entire debt.

What is a balance transfer fee?

Most banks charge a balance transfer fee for paying off a customer’s debts. The typical range is between 3% and 5% of the amount transferred, with many banks also requiring a minimum amount for the fee. You will see this in the chart below when we discuss our recommended cards.

When you’re calculating how much money to pay off with a balance transfer, you should take these balance transfer fees into consideration. That’s because the balance transfer fee will be deducted from your available credit line on your new card, lowering the actual amount of space you can use for the balance transfer itself.

For example, if you have a $15,000 limit on your account and a 3% balance transfer fee, you couldn’t pay off a full $15,000 worth of debts. The fee would add $450 (15,000 x .03 = 450) to the amount you transfer, which would put you above your credit limit. So, the most you would be actually able to transfer to your new account would be $14,550 (15,000 - 450 = 14,550). ‬

You may be able to find credit cards that do not have balance transfer fees, but they often don’t offer the 0% interest rate that’s most helpful for reducing your debt. There are some cards out there with both no fee and no interest, however — and if you find one, it’s definitely worth checking out.

How much can you transfer?

The amount of money you can move with a balance transfer depends on the terms and conditions set by your bank. You may be able to transfer up to your credit limit (minus any balance transfer fees) or you may be able to use only a certain percentage of your credit line for balance transfers.

For example, say your new card approved you for a credit limit of $2,500, but it also came with a stipulation that you can only use up to $1,500 of that for balance transfers. The one upside to this is that in these scenarios the balance transfer fee is not typically counted against the amount you can transfer. So, you would likely be able to transfer the full $1,500 and have any associated transfer fee added to your balance on top of that.

Generally speaking, a higher credit score is more likely to result in a higher limit and amount you can use for balance transfers. And it’s a good idea to understand the limitations of your particular balance transfer credit card before you decide how much to transfer. That said, while transferring the full balance of a high-interest debt to a 0% APR card is a great opportunity, even if you can’t transfer the entire amount, moving as much as you can to the new account can still save you money on interest.

What types of debt can you transfer?

Every bank has its own rules about what you can pay off using a balance transfer. Generally speaking, they don’t allow you to pay off any other line of credit you may have with them.

Some banks restrict you only to paying off other credit cards. Others may issue you checks you can use to pay off loans or outstanding balances with creditors. Some can even transfer funds directly to your checking account to use as needed.

Make sure when you’re researching options for a balance transfer card that you find out which kinds of debts you can pay with their line of credit so you can plan appropriately. Here’s a look at what’s possible with some popular lenders.

Credit card


Credit card debt Auto loan Personal loan Student loan Mortgage
Chase Yes, so long as it’s not another Chase card Yes Yes Yes Yes
American Express Yes, so long as it’s not another AmEx card No No No No
Capital One Yes, so long as it’s not another Capital One card Yes Yes Yes No
Discover Yes, so long as it’s not another Discover card Yes Yes Yes Yes
Wells Fargo Yes, so long as it’s not another Wells Fargo card/line of credit Yes Yes Yes Yes
HSBC Yes, so long as it’s not another HSBC card. Yes, if you are given a promotional check. Yes, if you are given a promotional check. Yes, if you are given a promotional check. Yes, if you are given a promotional check.
Citi Yes, so long as it’s not another Citi or affiliated card. Yes, but you would need to contact customer service for help with this after you receive your card. Yes, but you would need to contact customer service for help with this after you receive your card. Yes, but you would need to contact customer service for help with this after you receive your card. Yes, but you would need to contact customer service for help with this after you receive your card.

How long does a balance transfer take?

Balance transfer times vary from bank to bank, and can run from 1 to 21 days. In the chart below, we look at some of the timeframes for a few banks that offer balance transfer credit cards.

The reason it’s important to know how long your balance transfer will take is that even though you may have a balance transfer processing, you will still be responsible for making timely payments on your old account until the full amount is paid. If there ends up being an overage, the creditor should issue you a refund for any money paid beyond what was owed. It’s better to overpay and get your money back later than to miss a payment and get a late fee as a result.

Card issuer Typical length of time for balance to transfer
American Express 5 to 7 days
Chase Electronic transfers can take 5 to 7 days. Transfers that have to be paid by physical check can take 15 to 21 business days.
Capital One 3 to 14 days, depending on if the transfer can be done electronically.
Discover 7 to 14 days, depending on if you initiate a transfer with a new card
Wells Fargo With a cheque, 7 to 14 business days.

1 to 5 business days with electronic transfer to creditor or customer’s checking account

HSBC 7 to 10 business days
Citi At least 14 days after the account is opened

Does a balance transfer hurt your credit score?

Initially, your credit score may take a small hit as a result of adding a hard inquiry to your reports. Hard inquiries occur when you file an application for credit and the bank requests a copy of your report for evaluation. This is all noted in your report as a “hard inquiry.” These can stay on your report for two years, but the impact is temporary, usually only a few months.

But being approved for a balance transfer card is an overall good thing for your credit score, as it increases the total amount of credit you can access. Remember that when you transfer a balance, you’re not so much getting rid of debt as moving it from one lender to another. Your total debt remains the same, but with a new account, you have more credit you can access.

As long as you don’t put new charges on the account you have freed up with your balance transfer, and you also pay on your new account, your overall debt will go down and your credit utilization ratio will steadily improve. Credit utilization is the percentage of your available revolving credit that you actually use, and has a heavy impact on your overall credit score.

The key to keeping your credit score in good shape when using balance transfer as a financial tool is to focus on paying down balances and avoiding adding new purchases on the accounts you have paid off.

Our recommendations for the best balance transfer cards

Card name Intro Balance Transfer Balance transfer fee Credit score needed
HSBC Gold Mastercard 0% for 18 months on balance transfers requested within 60 days of account opening $10 or 4%, whichever is greater Excellent, Good
Citi Double Cash Card 0% for 18 months $5 or 3%, whichever is greater Excellent
Wells Fargo Platinum Visa Credit Card 0% for 18 months $5 or 3%, whichever is greater for first 120 days; after that, $5 or 5%, whichever is greater Excellent, Good
Citi Simplicity Card 0% for 21 months $5 or 5%, whichever is greater Excellent, Good

HSBC Gold Mastercard

The HSBC Gold Mastercard offers a 0% APR on balance transfers for 18 months on balance transfers requested within 60 days of account opening. It also offers a 0% APR on purchases for 18 months. This card also has no penalty APR for late payments and several travel benefits, such as rental coverage, insurance, and no foreign transaction fees.

Citi Double Cash Card

The Citi Double Cash Card is both a balance transfer and cashback card, which is why we like it. It has an introductory 0% APR period of 18 months. The balance transfer fee is low — $5 or 3%, whichever is greater — and you can earn up to 2% cash back on all purchases: 1% as you buy and 1% as you pay.

Wells Fargo Platinum Visa Credit Card

The Wells Fargo Platinum Visa Credit Card also has a 0% APR for balance transfers for 18 months, and it has a 0% APR for purchases for the first 18 months. This card has a reasonable balance transfer fee — $5 or 3%, whichever is greater for first 120 days; after that, $5 or 5%, whichever is greater. We also like this card for its lower minimum credit score, which opens it up to those whose credit score may be just shy of “good.”

Citi Simplicity Card

The Citi Simplicity Card stands out for its introductory 0% APR for balance transfers for 21 months. It also has a 0% APR for purchases for 12 months. The balance transfer fee is a bit high — $5 or 5%, whichever is greater — but the card also offers no late fees or penalty APR for late payments. Citi Simplicity is a good card if you want more time to pay off your transfers and up to four months to decide which balances you want to pay with your account.

Business credit cards that let you do balance transfers

If you have a small business and are looking to save some money with balance transfer cards, you have some options that offer 0% APR:

  • U.S. Bank Business Cash Rewards World Elite Mastercard: U.S. Bank has a great offering with this card. You’ll get a 0% APR for balance transfers for 15 billing cycles. There is also a $500 cash back introductory offer and a 25% annual cash rewards bonus.
  • Wells Fargo Business Platinum Credit Card: Not as robust an option as the others, this card offers a 0% APR for 9 months on balance transfers. But it also offers a welcome bonus that lets you earn $500 or 50,000 points after spending $5,000 in the first 3 months.

Commonly asked questions about balance transfers

Is it smart to pay off one credit card with another?

It can be smart to do this, provided you don’t continue to add new charges to the card you paid off. If you open a balance transfer account to zero out an older credit card, you’re shifting debt from one location to another, not adding to your existing debt. When you pay on the balance transfer card, you reduce your debt. But if you add charges to the card you’ve paid off, you’re increasing your debt and that’s not the wisest financial move in this scenario.

What happens if you don’t pay off a balance transfer?

Every bank has different policies regarding what happens to the balance if you don’t pay off a transfer before the end of the introductory period. Some will charge you deferred interest — meaning all of the interest that would have accrued during that intro period, and that can add up to a lot of money. More often, you’ll find the bank simply begins charging interest at the regular APR on the balance that you have left.

Can you transfer a balance transfer?

Most banks will not allow you to transfer a balance from one card or account that it owns to a new balance transfer account that it also owns. You can, however, open a new balance transfer account with a different bank and use that line of credit to pay off what’s left unpaid from a previous balance transfer. That said, continuing to transfer a balance and not reducing your debt could be a sign that you need to take a hard look at your money habits and the state of your finances.

Can I earn rewards on a balance transfer?

Banks don’t usually apply rewards to balance transfers. These are generally earned with new purchases.

Are balance transfer fees worth it?

That’s really up to you to decide. If you are only transferring a small amount of money for a short period of time, the interest you save may not be enough to justify a 3% to 5% fee. A larger balance that could take decades to pay off and cost thousands more than you borrowed in interest may well be worth the fee.

Balance transfer tips

Now that you’ve learned a bit about how balance transfers work, here are some tips for what to do before, during, and after you open a new balance transfer credit card:

Before you open a new balance transfer credit card

  1. Get copies of your credit reports and scores. This will give you a good idea of what a bank will see when they make a hard inquiry.
  2. Dispute any errors on your credit reports that may be bringing down your scores.
  3. Research balance transfer credit cards, offers, terms, and conditions.
  4. Make calls and talk to customer service representatives to ensure you understand:
    • How long is the introductory APR
    • What is the balance transfer fee
    • What are the APRs after the introductory period is over
    • What is the credit score you need to have

During the balance transfer process

  1. Collect all of your contact and employment information.
  2. Evaluate which accounts you want to pay off with balance transfers.
    • How much is owed?
    • How much are you paying monthly now?
    • How much is the APR?
    • How much can you save by transferring balances?
  3. Collect all of the account numbers and balance amounts.
  4. Submit the application for your new balance transfer credit card.
  5. Once you’re approved, find out how much of a credit limit you are approved for and how much of that can be used for balance transfers.
  6. Choose which balances you would like to transfer to the new card.
  7. Calculate the balance transfer fee on this amount. Adjust the amount of your intended balance transfer if needed to stay below your credit limit.
  8. Submit the accounts and amounts you wish to transfer. This can typically be done by speaking with a customer service representative or through your online account.

After you have executed your balance transfer

  1. While the transfers are processing, continue to make timely payments to the account or accounts you’re paying off.
  2. Calculate how much you would have to pay per month to pay off balance on your new balance transfer credit card by the end of the introductory period.
    • If you can’t pay the full amount, budget as much as you can afford. You will still have to make a minimum monthly payment no matter what.
  3. Revise your monthly budget to account for this new payment as well as not having to pay on your older accounts anymore.
  4. Do not add new charges to the accounts you have paid off.
  5. Add a reminder about the end of the introductory period to your calendar.

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