The Pros and Cons of Balance Transfer Offers: How to Save on Interest Charges

Updated on January 24, 2023

Discover how balance transfer offers can help you save on interest charges and pay off debt faster. Learn about the pros and cons of balance transfers, including fees, limits, and credit requirements. Find out about alternative options such as personal loans for consolidating debt and tips for maximizing the benefits of balance transfers. Make an informed decision and take control of your finances with our comprehensive guide.

Summary

A balance transfer offer can be a great way to save money on interest charges by moving high-interest debt to a credit card that has an introductory 0% APR period for balance transfers.
Balance transfers can save money on interest charges, provide more time to pay off a balance, and simplify the process of paying off debt.
Drawbacks of balance transfers include balance transfer fees, limits on how much debt can be transferred, and the requirement of good or excellent credit to qualify.
A personal loan is an alternative to balance transfers, it can also be used to consolidate debt and you can pre-qualify for one without affecting your credit.
A balance transfer fee is typically a percentage of the amount transferred, ranging from 3% to 5%.
Credit cards have limits on how much debt can be transferred, which may not be high enough to transfer all of your debt.
Good or excellent credit is usually required to qualify for balance transfer credit cards.

Understanding the Benefits and Drawbacks of Balance Transfers

A balance transfer offer can be a great way to save money on interest charges by moving high-interest debt to a credit card that has an introductory 0% APR period for balance transfers. This means that you could potentially pay off your debt without having to pay any interest. There are many good balance transfer offers available, and you can find some great options by checking out lists such as NerdWallet’s best balance transfer credit cards. However, it’s important to keep in mind that balance transfers also come with fees and have certain rules and credit requirements. Before making a balance transfer, it’s important to consider whether the benefits outweigh the drawbacks. If you can pay off your debt in three months or fewer, or if you have poor credit, the drawbacks may outweigh the benefits.

Benefits of Balance Transfers: Potential Savings on Interest Charges and Convenience

The benefits of balance transfers include potential savings on interest charges, more time to pay off a balance, and convenience. By moving high-interest debt to a credit card with a low-interest rate or 0% introductory APR period, you can save money on interest charges, especially if you need several months to pay off the balance. For example, if you transferred a $6,000 balance with a 20% APR to a balance transfer card with a 0% introductory APR period for 15 months, even after paying a 3% balance transfer fee, you could save around $650 in interest charges. Additionally, a low-interest rate or long 0% introductory APR period provides you with more time to pay off the balance and make other financial obligations. Consolidating multiple balances onto one card also simplifies the process by having only one interest rate and due date to manage. However, balance transfers also come with drawbacks such as balance transfer fees and limits on how much you can transfer. Some credit cards also require good or excellent credit to qualify. An alternative to balance transfers is a personal loan which can also be used to consolidate debt and you can pre-qualify for one without affecting your credit.

Drawbacks of Balance Transfers: Fees, Limits, and Credit Requirements

Balance Transfer Fee

One of the main drawbacks of balance transfers is the balance transfer fee. This fee is typically a percentage of the amount transferred and ranges from 3% to 5%. This means that if you transfer a $5,000 balance to a card with a 3% balance transfer fee, the total balance on your new card will be $5,150. While this fee can be worth it when considering the savings on interest charges, it can also have a negative impact on your savings if you keep postponing paying off your debt by doing multiple balance transfers.

Limits on How Much You Can Transfer

Another drawback of balance transfers is the limit on how much you can transfer. It is typically not known as to what the credit card limit will be on a given card until you apply for it, and it may not be high enough to transfer all of your debt. For example, if your balance transfer credit card has a limit of $6,000 and you have a $10,000 balance to transfer, you can only transfer a portion of it. Some credit cards have additional limits, for example, Chase cards do not allow you to transfer over $15,000. If you’re looking to consolidate debt for convenience at a lower interest rate and 0% APR is not your top priority, a personal loan is an alternative option. You can pre-qualify for a personal loan without affecting your credit and see what rates and amounts you can borrow. The ability to see how much you can borrow before accepting the offer is a significant benefit, as it eliminates the risk of being surprised with a low limit as you might be with a credit card.

Good or Excellent Credit is Usually Required

One drawback of balance transfer credit cards is that they generally require good or excellent credit to qualify. Individuals with a large amount of high-interest debt, who could benefit the most from a balance transfer card, often have difficulty qualifying for them. This is because the best balance transfer cards typically require FICO scores of 690 or higher. Carrying a lot of debt can also lower your credit score and make it harder to qualify. In cases where you do qualify with an average credit score (FICO scores between 630 and 689), your credit limit may be much lower, limiting your use of the card.

If you are unable to qualify for a lower-interest debt consolidation option such as a balance transfer card or loan, the next best thing would be to pay off the balance as quickly as possible. By paying as much as you can afford above the minimum, it can reduce the total amount of interest owed.

Maximizing the Benefits of Balance Transfers: Tips and Considerations

When considering a balance transfer, it is important to weigh the potential benefits and savings against the costs. In general, a balance transfer can be worth it if you have good or excellent credit and can qualify for a favorable offer, carry high-interest debt, and need several months to pay off your balances in full. However, if you are able to pay off your debt within three months or sooner, the balance transfer fee may outweigh the savings on interest charges and a personal loan may be a better option. Pre-qualifying for a personal loan can give you the ability to see how much you can borrow and what rates you can get before accepting the loan, without affecting your credit.

Questions Answered in this Article

What are the benefits of balance transfers? Answer: The benefits of balance transfers include potential savings on interest charges, more time to pay off a balance, and convenience. By moving high-interest debt to a credit card with a low-interest rate or 0% introductory APR period, you can save money on interest charges, especially if you need several months to pay off the balance. Additionally, a low-interest rate or long 0% introductory APR period provides you with more time to pay off the balance and make other financial obligations. Consolidating multiple balances onto one card also simplifies the process by having only one interest rate and due date to manage.
What are the drawbacks of balance transfers? Answer: The main drawbacks of balance transfers include balance transfer fees, limits on how much you can transfer, and the requirement of good or excellent credit to qualify. The balance transfer fee is typically a percentage of the amount transferred, which can have a negative impact on your savings if you keep postponing paying off your debt by doing multiple balance transfers. Additionally, not all credit cards have high enough limits to transfer all of your debt, and the best balance transfer cards typically require good or excellent credit to qualify.
What is an alternative to balance transfers? Answer: An alternative to balance transfers is a personal loan, which can also be used to consolidate debt and you can pre-qualify for one without affecting your credit. A personal loan can be a good option if you’re looking to consolidate debt for convenience, and 0% APR is not your top priority. You can see what rates and amounts you can borrow before accepting the offer, which eliminates the risk of being surprised with a low limit as you might be with a credit card.
What is the balance transfer fee? Answer: The balance transfer fee is a fee that is typically a percentage of the amount transferred, it ranges from 3% to 5%. For example, if you transfer a $5,000 balance to a card with a 3% balance transfer fee, the total balance on your new card will be $5,150. While this fee can be worth it when considering the savings on interest charges, it can also have a negative impact on your savings if you keep postponing paying off your debt by doing multiple balance transfers.
What credit is required for balance transfer credit cards? Answer: The best balance transfer cards typically require good or excellent credit to qualify. Individuals with a large amount of high-interest debt, who could benefit the most from a balance transfer card, often have difficulty qualifying for them. This is because the best balance transfer cards typically require good or excellent credit to qualify.