Balance Transfers Explained: Fees, Terms, and Fine Print

How a Balance Transfer Works

A balance transfer moves existing credit card debt to a new card, usually one with a lower interest rate, to reduce interest costs. The new card issuer pays off the old balance, and you then owe that amount (plus any fees) to the new card.

The amount transferred plus the balance transfer fee becomes the new balance on the receiving card.

Balance transfers can sometimes be used to pay off other types of debt, such as personal loans or home equity lines of credit, depending on the issuer. However, most balance transfer cards are designed for credit card debt.

Sources: MoneyGeek, Experian, TD Bank

Common Balance Transfer Fees

Most balance transfer cards charge a fee for each transfer, typically 3% to 5% of the amount transferred. This fee is often subject to a minimum, commonly $5.

Some cards offer a lower fee for transfers made within the first few months. For instance, the Citi Simplicity Card charges a 3% fee (min $5) for the first 4 months, then 5% for subsequent transfers.

• Typical fee range: 3% to 5% of the transferred amount.
• Minimum fee commonly $5.
• Some issuers offer promotional lower fees for initial transfers.

Sources: Experian, TD Bank, YouTube, MoneyGeek, Yahoo Finance

Promotional APR Periods and Standard APR After

Balance transfer cards often offer an introductory 0% APR on transfers, allowing you to pay down the balance without accruing interest for a set period. These promotional periods typically last from 6 to 21 months, with some extending to 24 months.

After the introductory period ends, the standard APR applies to any remaining balance.

For example, the Citi Simplicity Card offers 0% for 21 months, while the Wells Fargo Reflect Card also offers 0% for 21 months.

Sources: MoneyGeek, TD Bank, Yahoo Finance, YouTube

Balance Transfer Limits

Balance transfers are limited by the credit limit on the new card. The amount you can transfer may be less than the total balance you owe on other cards, especially if you do not receive a high enough credit limit.

The credit limit is based on your credit profile and the issuer's underwriting criteria.

Sources: YouTube

Eligibility and Credit Requirements

Balance transfer cards generally require good to excellent credit. While specific minimum credit scores are often not publicly disclosed, a FICO score of around 680 to 700 or higher is typically recommended for the best offers.

Issuers also consider your income, existing debt, and credit history when determining eligibility and credit limits.

Cards with longer promotional APR periods and lower fees tend to be reserved for applicants with stronger credit profiles.

Sources: MoneyGeek, YouTube

How to Initiate a Balance Transfer

To initiate a balance transfer, you typically provide the new card issuer with the account information of the card you want to pay off, including the account number and the amount to transfer.

You can usually do this during the application process or after you are approved, through the issuer's online portal or by phone.

The new issuer then sends a payment to your old card issuer, and the transferred amount is added to your new card's balance.

• Have your old card details handy: account number and balance.
• Initiate the transfer either during application or after account opening.
• Transfers usually take several days to a few weeks to complete.

Sources: MoneyGeek, TD Bank

Tips to Avoid Common Pitfalls

Missing a payment during the promotional period can void the 0% APR and immediately revert to the standard APR. Set up automatic payments or reminders to avoid this.

Be aware of the balance transfer fee and factor it into your savings calculation. A fee can be worth it if the interest savings exceed the fee.

Avoid using the new card for new purchases unless it also offers a 0% intro APR on purchases, as these transactions may accrue interest immediately and be subject to different repayment rules.

After the promotional period ends, any remaining balance will accrue interest at the standard APR. Plan to pay off the balance or transfer again if needed.

• Set up autopay to avoid missing a payment.
• Calculate whether the fee outweighs the interest savings.
• Understand that new purchases may not get the same 0% APR.

Sources: NerdWallet, Experian, YouTube