Are credit card balance transfers worth it?

Credit card balance transfers are designed to help you save money when you have high-interest credit card debt. Federal Reserve data put the average credit card annual percentage rate (APR) at 16.44 percent, as of November 2021.

A credit card balance transfer works by allowing you to move balances from one card to another, ideally at a lower interest rate, helping you to pay your balance down faster.

This could be a good strategy for managing expensive credit card debt. But before applying for a balance transfer, it's important to understand how they work.

Balance Transfer Basics

Balance transfer offers are designed to help you move debt from one credit card to another. These cards may offer a low introductory APR—often 0 percent—for a set time period. During this introductory period, you may pay low or no interest at all. However, the regular variable APR takes effect once the promotional period ends and applies to the remaining balance if it’s not paid off.

A balance transfer fee may apply. These fees are typically 2-3 percent of the amount transferred, and there may be a $5 to $10 minimum fee. The balance transfer fee is added to the transferred amount and becomes part of the total you're responsible for repaying. The card that you transferred the balance from remains open unless you decide to close it.

Are balance transfers a good deal?

A balance transfer could be a good deal if you're able to lower the interest rate on your credit cards and you're able to pay off the balance in full before the regular APR kicks in. Credit card debt is typically considered "bad" debt since it isn't linked to any appreciating assets. It makes sense to try to get rid of it as quickly as possible, especially if you're paying double-digit interest rates.

Comparing balance transfer offers to estimate your potential savings (and potential costs) can help you decide what's a good deal and what's not. Specifically, it's important to look at:

• Introductory APR
• How long the introductory period lasts
• Regular variable APR
• Balance transfer fee

Some credit cards will waive the balance transfer fee. But you may need to complete the transfer within the first three to four months of account opening to take advantage of this benefit.

What's the catch with balance transfers?

The biggest drawback of balance transfers is the time component. You may get a 0% APR, but it won't last forever. You need to be disciplined about your debt payoff plan in order to avoid interest charges. Otherwise, you'll owe interest on any remaining balance left once the introductory period is over. There's also the balance transfer fee to factor in, it’s important to  do the math to see how much you might pay.

For example, if you want to transfer a $5,000 balance to a card with a 0% APR. You have two options:

• Card A: 0% APR for 15 months with a 3% balance transfer fee
• Card B: 0% APR for 12 months with a waived balance transfer fee

Card A:

Total Debt Payoff:  $5,150 including balance transfer fee

Monthly payment: $344 to pay it off before the promotional period ends.

Card B:

Total Debt Payoff: $5,000 due to balance transfer fee waiver

Monthly payment: $417 to pay the card off before the introductory APR expires.

You'd have to decide which option is better, based on your budget, how quickly you want to pay off the debt, and whether you want to pay the fee.

Be Smart About Balance Transfers

If you're considering a balance transfer, first create a plan to pay it off. That means calculating how much you'll need to pay monthly to zero out the balance before the promotional rate ends. Again, this is where it's important to revisit your budget to see what's affordable and realistic.

Also, consider what you'll do with the credit card accounts you transfer balances from. If you close accounts immediately after a balance transfer, that can hurt your credit utilization until the transferred balance starts to go down as you make payments. Activating your card's freeze feature, or simply taking it out of your wallet and off any saved online platforms, can help you avoid the temptation to spend as you work on paying down transferred balances. 

If you have high-interest debit, a balance transfer is a smart choice and have enough good credit to qualify for a card with a 0% intro APR on your new card. Your new card can save you a lot on interest and help you pay off your other credit card balance faster