Balance Transfers: How to Use Them Wisely Without Hurting Your Credit

A balance transfer moves debt from one credit card to another, typically to take advantage of a lower interest rate. Used correctly, it's a powerful debt payoff tool. Used incorrectly, it can make things worse.

How Balance Transfers Work

1. Apply for a balance transfer card (often with 0% intro APR)
2. Transfer existing balance to the new card
3. Pay off the balance during the promotional period
4. Avoid new charges on the old card

Credit Score Impact

Short-Term Effects

Negative:

• Hard inquiry from new card application (-5 to -10 points)
• New account lowers average age of accounts

Positive:

• Lower utilization if you get a higher limit
• Additional available credit

Long-Term Effects

If you pay off the debt:

• Lower utilization = higher score
• Additional positive tradeline

If you don't pay it off:

• Higher balance on new card
• Possibly higher total debt if you keep spending

Balance Transfer Best Practices

Do:

• Calculate if you can pay off during the 0% period
• Stop using the old card (don't accumulate more debt)
• Make payments on time (late payment may void 0% APR)
• Set up autopay for at least the minimum
• Pay more than the minimum to pay off before promo ends

Don't:

• Transfer more than you can pay off
• Make new purchases on the balance transfer card
• Miss payments
• Ignore the transfer fee in your calculations
• Close the old card immediately (hurts utilization)

The Math

Before transferring, calculate:

• Balance to transfer
• Balance transfer fee (typically 3-5%)
• Monthly payment needed to pay off before promo ends
• Interest you'll save vs. current card

Example:

• $5,000 balance at 20% APR
• Transfer to 0% card with 3% fee ($150)
• 15-month 0% period
• Payment needed: $343/month
• Total paid: $5,150
• Without transfer at 20%: $5,850+ (paying minimums)
• Savings: $700+

When to Avoid Balance Transfers

• You can't commit to paying it off
• The fee outweighs interest savings
• You'll keep spending on old cards
• You're applying for a mortgage soon
• Your credit isn't good enough to qualify

After the Transfer

1. Make a payoff plan
2. Set up autopay
3. Avoid new debt
4. Don't close the old card (yet)
5. Celebrate when you're debt-free!

Balance transfers are a tool, not a solution. The solution is changing the behavior that led to debt in the first place.