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By obtaining a balance transfer credit card, you have the opportunity to transfer your debt from a card or loan that is currently accruing interest to a card that offers a period of zero interest. Once this introductory 0% annual percentage rate, or APR, period concludes, the card’s regular interest rate will take effect.

Transferring your balance to a new card can be beneficial in terms of saving on interest payments while you work toward reducing your debt. However, it’s important to consider a few key factors.

Understand how balance transfers work

First, it’s important to understand exactly how balance transfers work. In short, a balance transfer allows you to move an existing credit card balance to a new card. It’ll generally incur a small fee, but if you’re strategic about the card that receives your balance transfer, you could pay no interest for several months — or even longer.

Typically, the longer the promotional period, the more advantageous it is. A lengthier period allows for more time to repay the balance without incurring interest, enabling smaller monthly payments. This flexibility is particularly beneficial when juggling other financial obligations each month. Some balance transfer credit cards offer an extensive promotional period exceeding a year with 0% interest.

However, it’s crucial to aim for complete repayment of your balance before the 0% introductory APR period concludes. Beyond this point, the card will begin charging its regular ongoing interest rate on both new and remaining balances, which is substantially higher than 0%.

Additionally, it’s vital to pay close attention to the due date stated on your billing statement. Monthly payments are still required on the transferred balance, and failure to make timely payments can result in the loss of the promotional 0% APR period. Late payments may even lead to the imposition of a penalty APR that exceeds the card’s usual rate.

Remember, a balance transfer card should serve as a tool to facilitate the repayment of your debt, rather than a means to accumulate and disregard it.

Read more: How to do a balance transfer

Consider the balance transfer fee

Most balance transfer credit cards impose a balance transfer fee, typically ranging from 3% to 5% of the transferred balance (often with a minimum of $5), to initiate the transfer.

Paying this fee can be justified if the amount you will save in interest during the 0% introductory APR period surpasses the fee. It also helps if the card has other appealing features.

Investigate alternatives

You’ll want to make sure you get the card that makes the most sense for your wallet, so be sure to investigate other options before making a decision.

For example, if you require a few extra months without interest and value the flexibility of late payments, a card with a higher balance transfer fee might be worthwhile. However, if you are confident in always making timely payments, a card with a 3% fee may be more suitable.

A small number of credit cards do not charge a balance transfer fee, but their 0% introductory APR periods are typically shorter.

Understand your current credit card issuer’s policies

Typically, it’s not possible to transfer debt between cards issued by the same issuer. For instance, you cannot transfer a balance from one Chase card to another Chase card. On the positive side, this limitation helps narrow down the options when selecting a suitable balance transfer card.

There are other factors to consider when engaging in a balance transfer. Opening a new line of credit incurs certain costs that may not be immediately apparent. For instance, most new hard credit inquiries, which occur when applying for a credit card, result in a slight and temporary reduction in your credit score. Additionally, obtaining a new credit line can slightly lower your score by reducing the average age of your accounts.

However, having access to a larger credit pool can potentially improve your credit utilization ratio, which may increase your credit scores.

Related: Do balance transfers affect your credit score?

Bottom line

The key to balance transfers is to carefully evaluate how opening a new credit card can affect your credit score and financial well-being in the long run.

Apart from that, making a decision regarding a balance transfer card involves assessing the financial numbers. If transferring your debt to a new card will result in significant savings, applying for a balance transfer card may be the appropriate course of action.