Is a Balance Transfer Right for You? 5 Scenarios to Consider
A balance transfer allows you to move high-interest debt from one account to a credit card with low (or zero) interest. In certain situations, it can be an effective way to consolidate debt, save money on interest, and improve your credit score. But in other cases, the cost of a balance transfer outweighs the benefits — and can even leave you with more debt.
So, when is it a good idea to do a balance transfer? And when is it better to skip? Let’s explore a few scenarios to help you answer the question, “Should I do a balance transfer?”
5 Reasons a Balance Transfer Might Be Right For You
Under the right circumstances, a balance transfer credit card can reduce interest charges and streamline monthly debt payments. On the other hand, it can come with balance transfer fees, limitations, and a short-lived introductory APR period.
Before you commit to this debt consultation strategy, it’s important to understand all the pros, cons, and indicators of when it might be right for you.
With that in mind, here are five scenarios where a balance transfer could be a good idea.
1. You Need a Long Time to Pay Off High-Interest Debt
If you’re able to pay off your debts in three months or less, it’s probably best to avoid a balance transfer. Transfer fees can range from 3 to 5%, so if you’re close to paying off the balance, the cost could outweigh the savings.
However, if you need a lot more time to pay down your debt, a balance transfer credit card could save you money by eliminating high interest rates and giving you more leeway. Just keep in mind that you’ll need a good enough credit score to qualify for a credit card that has a 0% introductory APR.
2. You Pay Your Credit Card Bills on Time
Some balance transfers come with the perk of 0% interest for 12 months. But that doesn’t give you the green light to ignore your debts for the next year. Missing or late payments can void your 0% APR offer, which can completely negate the benefits of the balance transfer. In fact, missed payments could result in hefty late fees and an APR of nearly 30%.
For this reason, it’s only wise to do a balance transfer if you’re confident in your ability to pay credit card bills on time. Better yet, set up auto payments and make sure you always pay the monthly balance. Then, make additional payments if you have the extra cash on hand. Be sure your bank account always has adequate funds for these payments, and be conscious of overdraft fees.
3. You Have a Good Credit Score
The best balance transfer cards require you to have good credit (around 670 or higher). If your FICO score is any lower, you could have a hard time finding a credit card with a long period of 0% APR. Even if you do qualify for an offer, you probably won’t get a high credit limit, meaning the balance transfer won’t be worthwhile.
Before exploring balance transfer offers, use a tool from Credit Karma or Experian to get a free credit check. Then, explore the best balance transfer credit cards to make sure your credit score lines up with the requirements. If it does, it’s something you may want to move forward with.
4. You Don’t Have Massive Amounts of Debt
If you’re drowning in debts, a balance transfer probably won’t be an effective way to save money. Credit card providers have set limits on how much debt you can transfer at once, so it’s important to read the fine print before signing any agreements.
Keep in mind that the exact amount you can transfer depends on your specific card and your individual credit limit. This amount is usually determined based on your credit limit, and sometimes transfers are capped at 75% of the overall limit.
5. You’re a Responsible Credit Card Holder
Sometimes getting a new credit card feels like a free pass to spend, spend, spend. Since you have the option to pay off the debt later — or pay the minimum balance — it can be tempting to run up the balance and enjoy life in the moment. If this is the case for you, a balance transfer is probably a bad idea.
On the flip side, if you’re a responsible credit card holder who won’t overspend or miss payments, a balance transfer could be an effective way to simplify your debts and save money in the long run.
Find Out If a Balance Transfer Is Right For You
If you have a moderate amount of high-interest debt you can’t pay off in the next three months, a balance transfer credit card could be a great solution. By moving debt to a credit card with an introductory 0% APR, you can eliminate interest charges, consolidate your monthly payments, and improve your credit. However, a balance transfer may not be right for you if you can pay off your debt quickly, have a poor credit score, or struggle to use a credit card responsibly.
Still not sure if a balance transfer is right for you? Use a balance transfer calculator to calculate how much you could save.