Many credit card issuers promote balance transfers as one of the most attractive perks of their cards. These offers often include promotional rates, such as 0% interest on balance transfers for an introductory period, typically lasting 12 to 18 months.

If used wisely, balance transfers can be a powerful tool to reduce your credit card debt. By transferring balances from high-interest credit cards to one with a 0% APR promotional period, your payments go directly toward the principal rather than being eaten up by interest. This strategy can save you money and help you pay off your debt faster.

Features to Look for in a Balance Transfer Credit Card

To maximize the benefits of a balance transfer, it’s essential to choose the right credit card. If you have a strong credit score, you’ll likely qualify for competitive offers. When evaluating options, consider the following features:

• 0% APR on Balance Transfers: The primary benefit of a balance transfer is avoiding interest. Look for cards offering 0% APR for the longest period available.
• 0% APR on New Purchases: If you plan to use the new card for purchases, confirm whether the promotional interest rate also applies to them.
• Long Introductory Period: Some cards offer promotional periods of just six months, while others may extend up to 21 months. A longer period provides more time to pay down your balance without incurring interest.
• Low Balance Transfer Fees: Most credit cards charge a fee for transferring a balance, typically 3-5% of the amount transferred. Look for cards with low or no fees to maximize your savings.
• Low Ongoing APR: If you don’t pay off the balance within the promotional period, any remaining debt will be subject to the card’s standard APR. Opt for a card with a competitive ongoing rate to minimize future costs.

How to Avoid Pitfalls When Using Balance Transfers

While balance transfers can be a smart financial move, they also come with risks if not handled carefully. Here’s how to avoid common mistakes:

• Commit to Reducing Debt: A balance transfer is not a license to overspend. Avoid adding new purchases to either the old card or the new one. Focus on paying down your debt aggressively.
• Make Payments on Time: Missing a payment can void your promotional APR and trigger penalty rates, which are often much higher. To avoid this, set up automatic payments or reminders to ensure timely payments.
• Understand the Impact on Your Credit Score: Opening a new credit card may temporarily lower your credit score due to the hard inquiry and a shortened average account age. Additionally, repeatedly transferring balances to new cards can signal financial distress to lenders. Manage your credit responsibly by keeping your credit utilization ratio low and avoiding excessive account openings.
• Calculate the Costs: Ensure that the savings from the lower interest rate outweigh any fees associated with the transfer. Use a balance transfer calculator to estimate your potential savings.

Key Takeaways

Balance transfers can be a game-changer for managing high-interest debt if used strategically. By choosing the right card, making timely payments, and focusing on debt reduction, you can take control of your finances and work toward becoming debt-free.

If you’re unsure about the best option for your situation, consider speaking with a financial advisor or credit counselor for tailored advice.