How a Balance Transfer Credit Card Can Help You Pay Down Debt

If you're paying hefty credit card interest rates, consider a balance transfer card, which can help improve your financial position.

By Consumer Reports

Updated October 18, 2021

In a sign that the pandemic is starting to ease, credit card issuers are once again offering balance transfer cards, which let you save money by shifting an existing balance to a new card that charges little or no interest for a year or more.

The new offers are arriving just as consumers are once again racking up credit card balances, which recently hit $966 billion, according to the Federal Reserve. That’s a turnaround from earlier in the pandemic, when nervous consumers focused on paying down their balances and reducing their card usage.

Now is a good time for anyone carrying hefty credit card debt to consider getting a balance transfer card. Credit card interest rates recently averaged 16.2 percent, up from their pandemic low of 15.9 percent.

By opting for one of these cards, you may be able to pay as little as zero interest on the amount you transfer, which will give you time to put more money toward paying off your actual debt.

“My no. 1 tip for someone who wants to reduce their credit card debt is to get a balance transfer credit card,” says Ted Rossman, senior industry analyst at CreditCards.com, "and then to focus on getting out of debt as quickly as possible."

Think about it this way: Retiring debt that costs you 16 percent or more in interest is the equivalent of earning a 16 percent guaranteed return on investment—a great deal.

Strike a Great Balance Transfer Deal

Making a balance transfer is fairly simple. You can apply online, and the new card will actually handle the transfer. All you have to do is provide some basic information, such as the account number of the old card and the amount you want to transfer.

Based on your credit limit or other factors, the balance transfer card may approve you for all or part of the requested transfer amount.

But, as you would expect, there are a few catches. You generally need to have a good or excellent credit score—about 700 or higher—to qualify for an attractive balance transfer deal, says Rossman.

For example, although cards advertise how much debt consumers are allowed to transfer, that figure may be lower for consumers without great credit—and you won’t know how much you’ll be allowed to transfer until after you apply and get approved.

"If you don’t have great credit, the balance transfer amount may not be quite what you expected," says Jill Gonzalez, senior analyst at consumer finance website WalletHub.

Another thing to look out for when selecting a balance transfer card is the duration of the zero percent interest period, Gonzalez says.

“Balance transfer credit cards disappeared almost entirely from the market last year, during the pandemic,” says Gonzalez. “However, they are making a comeback right now.” Most of them are offering 18 months of no interest, and there are some that go up to 21 months.

By law, the minimum no-interest period is 6 months, according to Chi Chi Wu, an attorney with the National Consumer Law Center.

You also need to beware that most balance transfer cards charge transfer fees—typically 3 to 5 percent of the balance being transferred, says Matt Schulz, chief industry analyst at LendingTree.

If you’re shopping for a balance transfer card, Rossman suggests the Wells Fargo Reflect card, which offers a zero interest period that could be extended for up to 21 months. You’ll pay a transfer fee of $5 or 3 percent of the balance, whichever is greater, if you complete the transfer within 120 days of opening the account.

Other cards to consider include Citi Simplicity and Citi Diamond Preferred, which both have 21 month zero interest balance transfer offers. Their transfer fee is the greater of $5 or 5 percent.

Some balance transfer cards also include zero percent interest on purchases as well as on the transfer. But the experts we spoke to all recommend that consumers with credit card debt not use the new card for spending at all. Instead, use cash or a debit card for your purchases.

"A big part of debt reduction is psychological, and you need to figure out what got you into debt in the first place and how to avoid going back there,” says Rossman. “It’s too risky to try to eliminate old debt while juggling new credit purchases at the same time.”

Another reason to avoid using these cards for new spending is that they usually don’t offer rewards like points or cash back, and the interest they charge on new purchases can be high, Schulz says.

The challenge is to pay off the balance before the rate adjusts. You’ll need to make every payment to the credit card company on time. One slip-up, and you may lose your zero rate.

What if you can’t transfer all of your debt to a zero-rate card? Ask your present card issuers for a better rate and let them know that you are trying to do better at getting your balances paid off.

Making timely payments can also have a big impact on your credit score. Though the goal is to get your debt paid off during the zero-rate period, if you fall short of that, a higher score can result in paying lower interest rates in the future.

Consumer Reports

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