How to select a balance transfer credit card

With a balance transfer credit card, you can shift your existing debt from a high-interest card or loan to one that features an introductory zero-interest period. After this initial 0% annual percentage rate (APR) period ends, the regular interest rate will apply.

Moving your balance to a new card can help you save on interest while you focus on paying down your debt. However, it’s essential to keep a few important factors in mind.

Learn the ins and outs of balance transfers

First, it’s essential to grasp how balance transfers operate. Essentially, a balance transfer enables you to transfer an existing credit card balance to a new card. While there’s usually a small fee involved, choosing the right card for your balance transfer could mean no interest for several months — or potentially even longer.

Generally, the longer the promotional period, the better it is for you. An extended period gives you more time to pay off the balance without accruing interest, allowing for smaller monthly payments. This flexibility can be especially helpful when managing other financial commitments each month. Some balance transfer credit cards offer promotional periods that last over a year at 0% interest.

However, it’s critical to aim to pay off your balance before the 0% introductory APR period ends. Once this period concludes, the card will start applying its regular interest rate on both new and remaining balances, which is significantly higher than 0%.

Furthermore, it’s important to keep an eye on the due date on your billing statement. Monthly payments on the transferred balance are still required, and failing to make these payments on time could lead to losing the promotional 0% APR period. Late payments might even result in a penalty APR that is higher than the card's standard rate.

Keep in mind: A balance transfer card should be a means to aid in paying off your debt, not a way to accumulate more debt and neglect it.

Think about the balance transfer fee

When initiating the transfer, most balance transfer credit cards charge a balance transfer fee, which typically falls between 3% and 5% of the amount transferred, often with a minimum fee of $5.

Paying this fee is worthwhile if the savings on interest during the 0% introductory APR period exceeds the fee. Additional attractive features of the card can also justify the cost.

Explore other options

It's essential to choose a card that best fits your financial situation, so take the time to explore various options before making your choice.

For instance, if you need a few additional months without interest and appreciate the flexibility of late payments, a card with a higher balance transfer fee could be beneficial. Conversely, if you’re confident in consistently making on-time payments, a card with a 3% fee might be a better fit.

Some credit cards do not impose a balance transfer fee, but they usually offer shorter 0% introductory APR periods.

Familiarize yourself with your current credit card issuer's policies

Typically, transferring debt between cards from the same issuer is not allowed. For example, you cannot move a balance from one Chase card to another Chase card. On the bright side, this restriction can help streamline your choices when looking for an appropriate balance transfer card.

There are additional considerations when performing a balance transfer. Opening a new credit line comes with certain costs that might not be immediately obvious. For instance, most new hard credit inquiries, which happen when applying for a credit card, can lead to a slight and temporary dip in your credit score. Furthermore, adding a new credit line may lower your score slightly by affecting the average age of your accounts.

However, having access to a larger amount of credit could potentially enhance your credit utilization ratio, which may help improve your credit scores.

Final thoughts

The crux of balance transfers lies in carefully considering how opening a new credit card might impact your credit score and overall financial health in the long term.

In addition, choosing a balance transfer card requires a careful look at the numbers. If moving your debt to a new card leads to substantial savings, applying for a balance transfer card could be the right move.