Balance transfer

Moving debt from one credit card to another, often to a card with a low or 0% introductory APR, usually for a fee.

What it means

A balance transfer shifts what you owe on one or more cards to a different card, typically one with a promotional rate for a set number of months. During that period, more of each payment goes toward principal instead of interest, which can speed up payoff.

Most cards charge a transfer fee, often 3% to 5% of the amount moved, added to the new balance. When the promotion ends, the remaining balance starts accruing interest at the regular APR. New purchases on the card may not get the promotional rate, and a late payment can cancel the promotion. Approval and the size of the limit depend on your credit.

Example

Suppose someone moves a $5,000 balance from a card charging 22% APR, about $92 a month in interest, to a card with 0% for 15 months and a 3% fee. The fee is $150, making the new balance $5,150, and paying about $344 a month would clear it before the promotion ends.

How it’s used

Paying down high-interest credit card debt faster
Consolidating several card balances into one payment
Buying time during a temporary cash squeeze

Strengths and weaknesses

Strengths

Can save a large amount of interest
Simplifies multiple balances into one
Gives a clear payoff window

Weaknesses

Transfer fees add to the debt
High regular APR applies after the promotion
Opening a new card adds a hard inquiry and can tempt more spending

Good to know

Divide the balance plus fee by the promo months to find the payment that clears it in time.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.