How Balance Transfers Work
You open a new credit card that offers 0% APR on balance transfers for a promotional period, usually 12 to 21 months. You move your existing credit card debt to this new card, and for that promotional period, you pay no interest. Every dollar you pay goes to principal.
In theory, this accelerates your debt payoff and saves you money on interest. In practice, it works great for some people and terribly for others.
The Catches
Balance transfer fees are usually 3% to 5% of the transferred amount. So moving $10,000 costs you $300 to $500 upfront. That's still usually worth it if you're paying 22% interest, but it's not free.
The bigger catch: if you don't pay off the balance before the promotional period ends, you're hit with the regular APR, which is often as high as what you were paying before. Some cards even charge retroactive interest on the remaining balance.
Making It Work
To successfully use a balance transfer card:
- Calculate if you can realistically pay off the balance before the promo ends
- Factor the transfer fee into your math
- Don't use the card for new purchases
- Don't use your old cards either, or you'll just be in more debt
- Set up automatic payments to ensure you never miss one
Missing a single payment can sometimes void your promotional rate entirely, so automation is essential.
Track Your Payoff Progress
Spendify's debt planner can help you map out exactly how much you need to pay each month to hit zero before your promotional rate expires. No guessing, no surprises.
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