Credit Card 101: Balancing the Pros and Cons of a Balance Transfer
Under the right circumstances, shifting credit card debt to a lower-interest rate environment can be a smart move.
Article originally published on January 29, 2018 and refreshed on March 18, 2021.
You’ve likely received them in the mail: enticing balance transfer offers from credit card companies practically begging to take on your existing credit card debt. They may promise months without interest charges and seductively low fees. So, what’s the catch?
Credit card balance transfers — paying off one credit card with another — come with several caveats that should give consumers pause before jumping in. Under the right circumstances, however, moving credit card debt from a higher-interest to lower-interest environment can be a smart way to diminish debt. A balance transfer may make financial sense for you if some or all of the following conditions apply.
Credit Card Condition 1: You carry debt on a high-interest credit card
If you fork out monthly interest payments on a high-interest credit card, a balance transfer could yield significant savings — especially if you pay off the debt during the introductory period (generally 6-to-18 months) when many credit card companies offer rates as low as zero percent.
A credit card with a $2,000 balance and 17.5 percent interest rate, for instance, would take $183 per month over 12 months to pay off. Transfer that $2,000 balance to a 12-month, zero-percent card and it would take $167 per month to pay off over the same time frame — an interest savings of about $192.
If, on the other hand, you make minimum payments and retain a balance when the introductory period ends, the remaining debt will be subject to a regular variable annual percentage rate, potentially offsetting previous savings. Consider, too, that most credit card companies charge an upfront balance transfer fee (usually 3 to 5 percent of the transfer amount), something to factor into your calculations.
Use the Zions Bank credit card payoff calculator to assess possible interest savings with a credit card balance transfer.
Credit Card Condition 2: You want to consolidate debt
One perk of a credit card balance transfer is the opportunity to simplify your finances by bringing all your debt under one roof. And credit card balance transfers aren’t necessarily limited to credit card debt. It may be possible (though not necessarily prudent) to transfer other types of debt, like auto or furniture loans, through a balance transfer. Just make sure the loan you are transferring doesn’t have a prepayment penalty.
Also beware moving debt from a fixed interest rate environment to a loan with a variable interest rate, which may increase over time. Of course, a balance transfer isn’t your only option for consolidating debt — you can also move debt under a single umbrella with other types of loans, including a Zions Bank personal loan[cite::8014::cite] or Zions Bank home equity loan[cite::8014::cite].
Credit Card Condition 3: You have the discipline to pay off the debt
A credit card balance transfer might buy you time, but it won’t wipe out your debt. Don’t let a false sense of debt relief lure you into lagging on your repayment goals. Before committing to a balance transfer, lay out a timeline for paying down the debt. Avoid using the new card to rack up additional charges, which may not qualify for the introductory interest rate. Additionally, remember to pay any bills owed to the existing creditor while the transfer is being processed, which can take several weeks.
Credit Card Condition 4: You have good credit
Unfortunately, the tantalizingly low rate on a given credit card balance transfer promotion may not be the one you qualify for. The lowest interest rates and most generous terms are generally limited to those with good or excellent credit. Check with a lender to find out about their credit requirements. As an alternative to a balance transfer, you may be able to qualify for a personal loan at a lower interest rate than your current one. Keep in mind that a balance transfer itself will have little impact, for good or for ill, on your credit score.
Credit Card Condition 5: You are willing to read the fine print
The devil is in the details when it comes to weighing the pros and cons of a credit card balance transfer. In addition to comparing introductory periods, APRs, fees and rewards, you’ll want to evaluate the terms and conditions of various offers. In some cases, for example, a missed credit card payment will cancel the teaser rate and bring on immediate interest payments. Additionally, introductory rates don’t always apply to new purchases. Knowing the rules before you enter the ring and makes all the difference in a successful credit card balance transfer.
For credit cards that offer zero percent APR balance transfers — in addition to amazing rates, cash back and rewards — check out Zions Bank’s Clarity, Vivid and Agility Visa® Credit Cards[cite::2100::cite] or speak with a Zions Bank representative at 888-758-5349.