Balance Transfer Credit Cards: How They Work

If you find the idea of a balance transfer card with a low introductory rate appealing, you may then want to explore getting this type of credit card. But first, you might be wondering how to actually transfer a balance from one credit card to another.

Read on to learn more about balance transfers, how they can help you improve your financial well-being, and how one could help balance your monthly budget.

What is a Balance Transfer?

The simplest explanation of a balance transfer is this: a balance transfer allows you to use one credit card to pay off another’s debt.

To do this, you will first need to submit a balance transfer request. You can do this either while applying for a balance transfer card or after you’ve already been approved.

Then, the issuer of your balance transfer card will arrange to pay off your balance on the credit card you wish to pay off, and in the amount you requested.

This process can take between two and four weeks, depending on your card. Once the transfer is complete, you’ll continue to make monthly payments to your new credit card.

Balance transfers typically make sense if you have a card with a lower interest rate than the one on which you have a balance. In fact, some specialized balance transfer cards offer low introductory rates to encourage you to apply.

Why You Should Consider a Balance Transfer Card

The best balance transfer cards offer low introductory APR promotions which allow you to pay down your balance at a lower interest rate, at least during the promotional period.

As an example, let’s say you have a $5,000 balance on a card with an interest rate of 20%. If you were to transfer that balance to the BMO Preferred Rate Mastercard, you’d get a promotional 3.99% interest rate for nine months.

Managing to pay down your balance within those first nine months would bring your monthly payment to $565 and you’d pay roughly $133 in interest fees.

If you try to complete that same payoff schedule on your current card, however, your monthly payment would be $603, and you’d pay $426 in interest.

By using a balance transfer card in this situation, you’d save almost $300, more than you could earn in that same time with many rewards credit cards. There’s no comparison here: switching to a balance transfer credit card for poor rating is the smart move.

What to Consider Before Getting a Balance Transfer Card

If you have a large balance on a high-interest credit card, you may be interested in getting a balance transfer card to reduce your debt and interest. Before you do, however, there are a few things to think about.

Credit Limits

When transferring a balance from one credit card to another, you’re limited to the available credit on the second card. If you’re applying for a new balance transfer credit card, you may not get a high enough credit limit to cover your full balance.

Several factors go into determining your credit limit, including:

  • your credit score
  • income
  • debt
  • length of your credit history
  • other new credit
  • …and more.

Unfortunately, it’s not possible to find out what your credit limit will be on your new card until you apply and get approved for it.

Balance Transfer Fees

Balance transfer credit cards typically charge a fee to process your request, and this fee can range from 1% to 3%, depending on the card.

So, as you consider your interest savings from a balance transfer, don’t forget to add fees into the equation.

The Underlying Problem

Balance transfers are a great tool to help you eliminate high-interest debt. But they don’t necessarily solve the underlying problem that has caused your debt in the first place.

Maybe you’ve had some issues with overspending. What’s stopping you from racking up more debt on the original card once you’ve transferred a balance?

This isn’t to say that you shouldn’t use balance transfers; rather, you should address the reason for your debt while you work toward eliminating it.

Failing to address and deal with the underlying problem can lead to even more debt, in which case a second balance transfer could be out of the question.

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How to Do a Balance Transfer the Right Way

If you’re planning to do a balance transfer, here are some tips to get the most out of the feature and help you avoid any problems along the way.

Shop Around

Many credit cards offer balance transfer promotions, so it’s important to get the best one for your needs. Take the time to compare several credit cards, along with their promotional rates, fees, and the regular rate you’ll pay after the promotion ends.

Also, consider whether the cards have other important features, such as rewards or annual fees. It may take you some time to find the perfect card, but it’ll be well worth it in the long-haul.

Set up Automatic Payments

If you miss a payment you’ll be at risk of losing your balance transfer promotion entirely. By setting up automatic payments from your checking account, you won’t have to worry about accidentally forgetting to pay your bill each month.

The only caveat here is that you need to make sure you have enough cash in your checking account when your payment comes out each month. If not, you could lose your promotion and be on the hook for a returned payment fee.

Get on a Payment Plan

Ideally, you’ll pay off your balance in full by the end of your promotional period on your balance transfer card. But since some periods are just six months, this may not be enough time to eliminate the debt.

Even so, it’s important to create a repayment plan so that you can pay off your debt as quickly as possible.


If you have high-interest credit card debt, a balance transfer can make a big difference in your debt repayment strategy. As you consider whether a balance transfer is right for you, look at the different credit cards and the promotional balance transfer rates that they come with.

Also, think about both the benefits and drawbacks of a balance transfer card. If you do it right, you can save hundreds of dollars while also getting rid of your debt.

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