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A man sits at a table with papers and a credit card, smiling because he is saving money after a credit card balance transfer.

What Is a Credit Card Balance Transfer?

Credit card balance transfers can be a great way to tackle stubborn credit card balances that do not seem to decrease due to high-interest rates. Not only can a credit card balance transfer save you money, but it can also help you pay off your debt faster. 

However, credit card balance transfers are not always the right decision for every consumer. There are many things to consider before applying for a balance transfer and it is incredibly important to fully understand exactly what is best for your finances before applying. 

So, what is a credit card balance transfer? Keep reading to find out!

Credit Card Balance Transfer Defined

A credit card balance transfer is where you take the balance of one credit card and transfer it to another credit card. This typically requires a balance transfer percentage fee and a new annual percentage rate (APR) to consider.

Balance transfers are attractive to credit card companies because they are a way to acquire new balances and/or customers. Because of this, many companies will waive the balance transfer fee and even offer a 0% interest promotional period as well. This could significantly lower the amount of interest you would have to pay for the balance.

Credit card balance transfers can be beneficial to both consumers and credit card companies, so how do you know if applying for a balance transfer is right for you? 

Pros of a Credit Card Balance Transfer

Balance transfers are strong financial options when used correctly. And there are some attractive pros that come along with it. 

Save Money on Interest 

If the credit card company you are considering offers a waived balance transfer fee and a lower APR, you could end up saving money by completing the transfer. Oftentimes, companies will offer a 0% APR on a balance transfer, which could equate to big interest savings for you. 

Consolidate Debt

Most balance transfers allow you to transfer more than one balance to the new account. This means that if you had multiple credit cards with balances, you could consolidate those debts and payments into one account. This can make payments and overall debt management a lot easier for your budget or financial plans. 

May Improve Debt Utilization Percentage

The credit bureaus look at your debt utilization percentage to see how much of the open credit available to you is actually being used. If you opened a new account and completed a balance transfer, you now have twice as much available credit. 

As long as you do not spend using your original credit card, you will be using a smaller percentage of your debt utilization. This is a big win for your credit score.  

Cons of a Credit Card Balance Transfer

While a credit card balance transfer can save you money, that does not necessarily mean it is your best option. There are some cons related to a transfer as well.

Balance Transfer Fees

Although often waived, you may have to pay a balance transfer fee to complete the transfer of debt. This fee is typically a percentage of the balance being transferred and will cause your overall savings on a lower interest rate not to be as high. 

May End Up in More Debt

Another con to credit card balance transfers is that it increases your available credit, which could cause you to spend more money. For a balance transfer to save you money, it is imperative that you do not rack up a new balance on your original credit card. 

Could Impact Credit Score

If your balance transfer is going onto a new account, you may notice your credit score lowering, especially if you have other recent hard inquiries on your credit report. The age of your opened accounts matters as well to credit bureaus, so you do not want to open another account if any of your other accounts are relatively new as well.

How Much Money Could You Save?

The amount of money you could save on a credit card balance transfer varies from person to person. However, let’s look at a potential scenario where someone uses a credit card balance transfer to their advantage: 

Sally has one credit card that has a $5,000 balance with a 20% APR. She pays $300 a month toward this credit card. If she were to not spend any more available credit on this card, she would have it paid off in about 20 months and will have paid almost $1,000 in interest.

However, if Sally decides to do a credit card balance transfer of $5,000 to a new account that has a 0% balance transfer fee and 0% APR for 18 months, she will have her balance paid off in 17 months if she continues her $300 payments. She will also pay $0 in interest, saving her almost $1,000. 

Let’s say Sally is not able to do a credit card balance transfer with a 0% fee and 0% APR for 18 months, but instead, can do one with a 1% fee and 5% APR for 18 months. She will have her balance paid off in 18 months and will pay only around $300 in interest fees for the balance. 

In Sally’s case, she saved a significant amount of money either way by completing the balance transfer. As long as she does not use the newly available $5,000 credit card balance, she will have saved money and will be increasing her credit score as well. 

Credit Card Balance Transfer Process

To start the process for a credit card balance transfer, you will want to reach out to your bank or credit union to initiate a balance transfer request. Many financial institutions will have promotional periods for balance transfers during different times of the year, so be sure to ask about that as well.

At UCCU, you have the benefit of working with a credit union that puts your needs and success first. We have an online form that requests a balance transfer instantly. We also offer a no fees balance transfer option. Reach out to our friendly customer service team or initiate a credit card balance transfer below.

Learn More About No Fee Balance Transfers