How to choose a balance transfer credit card

By obtaining a balance transfer credit card, you can transfer your debt from a card or loan that is currently accruing interest to a card that offers a period of zero interest. The card's regular interest rate will take effect once this introductory 0% annual percentage rate period concludes.

Transferring your balance to a new card can be beneficial in terms of saving on interest payments while you work toward reducing your debt. However, it's important to consider a few key factors.

Understand how balance transfers work

First, it's important to understand exactly how balance transfers work. In short, a balance transfer allows you to move an existing credit card balance to a new card. It'll generally incur a small fee, but if you're strategic about the card that receives your balance transfer, you could pay no interest for several months — or even longer.

Typically, the longer the promotional period, the more advantageous it is. A longer period allows more time to repay the balance without incurring interest, enabling smaller monthly payments.

This flexibility is particularly beneficial when juggling other financial obligations each month. Some balance transfer credit cards offer an extensive promotional period exceeding a year with 0% interest.

However, it's crucial to aim for complete repayment of your balance before the 0% introductory APR period concludes. Beyond this point, the card will begin charging its regular ongoing interest rate on both new and remaining balances, which is substantially higher than 0%.

Additionally, it's vital to pay attention to the due date on your billing statement. Monthly payments are still required on the transferred balance, and failure to make timely payments can result in the loss of the promotional 0% APR period. Late payments may even lead to the imposition of a penalty APR that exceeds the card's usual rate.

Remember: A balance transfer card should serve as a tool to facilitate the repayment of your debt rather than a means to accumulate and disregard it.

Related: How to do a balance transfer

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Consider the balance transfer fee

To initiate the transfer, most balance transfer credit cards impose a balance transfer fee, typically ranging from 3% to 5% of the transferred balance (often with a minimum of $5).

Paying this fee makes sense if the amount you will save in interest during the 0% introductory APR period surpasses the fee. It also helps if the card has other appealing features.

Related: The complete guide to credit card annual fees

Investigate alternatives

You'll want to get the card that makes the most sense for your wallet, so be sure to investigate other options before making a decision.

For example, if you require a few extra months without interest and you value the flexibility of late payments, a card with a higher balance transfer fee might be worthwhile. However, if you are confident in always making timely payments, a card with a 3% fee may be more suitable.

A few credit cards do not charge a balance transfer fee, but their 0% introductory APR periods are typically shorter.

Related: How to choose a balance transfer credit card

Understand your current credit card issuer's policies

Usually, it's not possible to transfer debt between cards issued by the same issuer. For instance, you cannot transfer a balance from one Chase card to another Chase card. On the positive side, this limitation helps narrow down your options when selecting a suitable balance transfer card.

There are other factors to consider when engaging in a balance transfer. Opening a new line of credit incurs certain costs that may not be immediately apparent.

For instance, most new hard credit inquiries — which occur when applying for a credit card — result in a slight and temporary reduction in your credit score. Additionally, obtaining a new credit line can slightly lower your score by reducing the average age of your accounts.

However, having access to a larger credit pool can potentially improve your credit utilization ratio, which may increase your credit scores.

Related: Do balance transfers affect your credit score?

Bottom line

The key to balance transfers is carefully evaluating how opening a new credit card can affect your credit score and financial well-being in the long run.

Apart from that, deciding on a balance transfer card involves assessing the numbers. If transferring your debt to a new card will result in significant savings, applying for a balance transfer card may be the appropriate course of action.

Related: What is a good APR for a credit card?