If you’ve seen a credit card offer advertising a “balance transfer” and wondered what that means, you’re in good company. The idea is straightforward: you move an amount you already owe on one credit card to another credit card, usually to take advantage of a lower interest rate.
A balance transfer can help reduce the cost of paying down debt. Understanding how it works can help you decide whether it fits your situation.
Moving your balance to a different card
Imagine you owe $2,000 on a credit card. Each month you carry that balance, interest can add to what you owe.
With a balance transfer, you ask another credit card issuer to pay that amount to your original card. Once the transfer is complete, you owe the transferred amount to the receiving card instead. Any applicable transfer fee may also be added.
Your debt moves; it doesn’t disappear. The potential benefit comes from paying less interest while you work toward paying it off.
Why a lower rate can help
Interest is the cost of borrowing money. Your credit card’s annual percentage rate, or APR, tells you the yearly interest rate used to calculate those charges.
When you move a balance to a lower rate, less interest can accumulate. If you keep paying the same amount each month, more of your payment can go toward reducing what you owe.
Some balance transfer offers provide a low promotional rate for a limited time. Before accepting one, check both the promotional rate and the rate that will apply afterward. Any balance remaining when the promotion ends will generally begin accruing interest at the applicable regular rate.
How to make a balance transfer
The exact process depends on your credit card issuer, but it generally involves these steps:
- Review the offer. Check the interest rate, fees, promotional end date, and transfer deadline.
- Request the transfer. You’ll typically provide information about your existing credit card and the amount you want to move.
- Keep making payments on your original card. Continue paying at least the minimum due until you confirm that the transfer has posted.
- Check both accounts. Confirm the amount transferred and whether anything remains on the original card.
- Begin your repayment plan. Make on-time payments to the card receiving the balance.
Transfers take time to process, so submitting a request doesn’t immediately satisfy a payment due on your original card.
Check the fee, too
A lower rate is only part of the picture. A balance transfer may come with a fee—even if the promotional interest rate is 0%.
For example, a hypothetical 3% fee on a $2,000 transfer would cost $60. Compare that cost, plus any interest on the receiving card, with what you would expect to pay by leaving the balance where it is.
Give your transfer a purpose
A balance transfer works best when it supports a clear goal: paying down an existing balance at a lower cost.
Before moving forward, choose a monthly payment you can afford and put the promotional end date on your calendar. With a little planning, a balance transfer can be a useful step toward making your debt more manageable.