Is a Balance Transfer a Good Idea?

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Balance transfer Q&A: “Is a balance transfer a good idea?”

If you’re new to credit card balance transfers, you may be wondering if they’re a good idea. Or if they’re worth it? Or if they’re just another scam.

After all, the offers may seem too good to be true, what with the 0% APR and sometimes no fees whatsoever.

The answer to this complex question, of course, depends on your unique financial situation.

But in many cases, a balance transfer can save you a lot of money and get you out of debt fast. What’s not to like?

When Balance Transfers Are Helpful

Current balance: $2,000
Current APR: 19.99%
Balance transfer offer: 0% APR for 12 months
Balance transfer fee: 3%

In the example above, you’d be paying roughly $400 in finance charges (interest) annually (using simple math).

If you accepted the terms of the balance transfer offer, you’d immediately be hit with a $60 balance transfer fee, pushing your credit card balance to $2,060.

So your new credit card balance would actually go up. What gives? This doesn’t sound like a good idea.

At the same time, you wouldn’t incur any finance charges for a full 12 months.

In other words, 100% of every payment made during the year would go toward your actual credit card balance, instead of being split between interest charges and your balance.

This means your credit card payments would go a lot further, helping you knock down your debt that much quicker.

And if you were able to pay off the entire balance during that 12 months, you’d save about $300. Not a bad deal, and perhaps a good idea, assuming you like to save money.

However, if you didn’t manage to pay off the entire credit card balance within that time, you’d be subject to finance charges again once the introductory 0% APR period came to an end.

So make sure you know what the APR will be after the promotional period ends. And if you think you’ll have a substantial balance after the 12 months are up, consider transferring the remaining balance to another 0% APR balance transfer credit card.

*Even if you leave a balance on the new credit card after the promotional period ends, there’s a good chance the APR will be lower than what you we’re paying before.

When Balance Transfers Aren’t a Good Idea

Current balance: $10,000
Current APR: 4.99%
Balance transfer offer: 0% APR for six months
Balance transfer fee: 3%

In this example, you’d be paying roughly $500 in finance charges annually (again, simple math).

If you accepted the balance transfer offer, you’d be hit with a $300 balance transfer fee, and your new balance would be $10,300.

You’d only get 0% APR on the balance transfer for six months, so chances are you wouldn’t pay off the entire balance during that time unless you made enormous payments.

After the six-month introductory period expired, you’d be subject to finance charges again, and you’d probably be stuck with an APR higher than the 4.99% you originally had.

In this case, the balance transfer probably wouldn’t be a good idea, assuming it would take a year or three to pay off the entire balance.

So there it is; as I mentioned earlier, your situation is unique, so the value of a balance transfer will vary tremendously.

Balance Transfers Should Lower Your Interest Rate

  • The goal of a balance transfer is to save money on interest
  • And pay off your debt while the APR is 0% or similarly low
  • In most cases it should be easy to transfer your debt to a lower-APR credit card
  • But be sure to consider all the costs involved and make a plan to tackle the debt

At the end of the day, a credit card balance transfer is intended to lower your interest rate, plain and simple.

For many credit cardholders who are currently subjected to an interest rate in the 20% range or higher, this will be obvious.

But if the fees outweigh the savings, like it did in our second example, it won’t make sense.

Of course, my second example isn’t a very common scenario, and there’s a good chance you’ll be able to obtain a 0% rate for a 12-month period or longer, assuming you have decent credit.

Either way, take the time to do a little math, create a payoff plan, and read the fine print before agreeing to a balance transfer to ensure you’re getting a good deal.

Tip: Ask the credit card issuer to waive the balance transfer fee or search for a no fee balance transfer credit card to save even more money!


  1. I don’t see why it would be a bad idea unless you could pay off your entire balance without paying any interest whatsoever.

  2. Frank,

    It can be a bad if you never pay off the debt and keep paying balance transfer fees…but it’s better than paying sky-high APR.

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