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What Is a Credit Card Balance Transfer?

It’s a fact that credit cards are Americans’ spending tool of choice. Our State of Personal Finance study found that 86% of Americans have a credit card. Scary, but that’s not too surprising right? Well, here’s what’s even scarier: 56% of Americans who have a credit card don’t know what the interest rate is.

Yikes. If you’re strapped with debt and looking for a way out, you’re not alone. But don’t be fooled: Transferring your debt from one card to another won’t solve anything. Yeah, we’re talking about a credit card balance transfer.

Here’s the truth: A credit card balance transfer is just another way to keep you stuck in the cycle of debt. Because with debt, there’s no quick fix.

Yep, if you didn’t know, all those ways to fix debt “instantly” are really just ways for companies to make even more money off of you. (But shh—they don’t want you to know that.)

What Is a Credit Card Balance Transfer?

A credit card balance transfer is when you take the debt balance from one credit card with a high interest rate and transfer it to another credit card with a lower interest rate. People who are struggling with credit card debt use this method as a way to save money on the amount of interest they’re paying every month.

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A quick internet search on credit balance transfers will tell you it’s a great idea—especially if you transfer your debt to a new card with 0% APR (annual percentage rate). And on the surface, it sounds like a good way to free up more of your paycheck right now. But all of these sites boasting the best balance transfer credit cards are really just trying to sell you even more debt.

But here’s what you need to know: It’s a bad idea. But more on that in a little bit.

What Are Balance Transfer Credit Cards?

A balance transfer credit card is a credit card that allows you to move debt from other cards or accounts to that card. Most balance transfer cards offer a 0% annual percentage rate. But before you get excited . . . these cards might seem like a good idea for debt relief at first. But that 0% APR is temporary. Not only that, but they’ll also slam you with a 3–5% balance transfer fee on each transfer you make. (They have to make money off you somehow!)

Once that 0% introductory period is over, most of these cards end up charging you a variable interest rate from over 11% to almost 25%. If it didn’t hurt at first, it will later. Ouch. And don’t forget: That intro period doesn’t mean you won’t have to make payments every single month. If you miss just one payment during that time, you can say goodbye to that 0% interest rate for good.

Do Balance Transfers Hurt Your Credit Score?

It depends. Any time you sign up for a new credit card, the card company will do what’s called a hard inquiry on your credit to see if they really want to loan you money. This will make a small ding in your score at first, but it usually bounces back after a short period of time. So, when you sign up for a balance transfer credit card, your score might drop a few points.  

But listen: You don’t have to keep living in the nasty cycle of worrying about your credit score. You don’t have to wonder how many points you’ll lose with a new credit card. And you don’t need a credit card to help you with your debt.

Are Balance Transfer Credit Cards Worth It?

Absolutely not. Here’s why.

Credit card companies have one goal and one goal only: to keep you in the cycle of debt. That’s probably giving them a little too much credit. They’re actually not thinking about you at all, because when they see you, they just see dollar signs.

Have you ever wondered why you get rewards for using their money instead of your own? Yup—you guessed it . . . so they can keep making money off of you. Plus, if you’re the forgetful type (and most of us are), they’ll make even more money off your missed payments with interest rates, late fees and more.

Being overwhelmed with debt while living paycheck to paycheck is scary. Not only are you trying to figure out how to keep a roof over your head and food on the table, but you’re also trying to stretch what little money you have left to try and pay off your credit card each month.

Believe us, transferring debt from one credit card to another won’t fix the debt problem. At best, it’s a temporary solution. And at worst, it keeps you in debt even longer. Why? Because it creates a false sense of security. After a balance transfer, you’ll feel like you’ve fixed the problem (when in reality, you’ve only extended the amount of time you’ll be making payments).

Plus, that introductory offer is only there for a short time. When it’s over, you’ll be dealing with a variable interest rate—and that’s just plain scary.

How Do Companies Make Money From Credit Card Balance Transfers?

So, if credit card companies aren’t charging you interest, how do they make money? (Because you know that’s what they’re really after.)

1. Balance Transfer Fees

You didn’t think a balance transfer would be free, did you? That’s right—credit card companies charge you a fee of anywhere between three and five percent of the amount you want to transfer.

2. Penalty Fees

Just because your card won’t charge you interest doesn’t mean you get out of paying your minimum monthly payment. If you miss a payment during the promotional period of your card, you could lose your introductory 0% rate and get slapped with a penalty fee (penalty APR).

This is often double the normal interest rate (or up to almost 30%), and it stays with you for at least six months. Talk about a payday! But don’t worry—if they’re going to penalize you, they have to notify you 45 days in advance.

3. Post-Promotional Interest Rates

As we all know, all good things must come to an end eventually (if you can call this good). So, once your card’s promotional period ends, you could be looking at a brand-new variable interest rate—in the ballpark of 11–24%. Why variable? Because they can make more money that way, of course.

Who Qualifies for a Balance Transfer Card?

While it may seem like credit card companies give out cards like candy, when it comes to a credit card balance transfer, it’s a different story. Turns out, if you want to apply for a balance transfer credit card, you’re going to need a pretty good credit score—670 or higher.1

Why?

If a credit card company is already taking a risk on you with that 0% APR, they want you to be good for the money. (All they see are dollar signs, remember?)

If you don’t qualify for a balance transfer credit card (and even if you do), don’t waste another minute worrying about it. There are better ways to handle your debt—without taking the risk of going into more debt.

Alternatives to Credit Card Balance Transfer

Take it from us . . . There are plenty of other ways to free up your paycheck besides a credit card balance transfer. Here are just a few:

1. Get serious about paying off debt.

Debt is serious business, so it’s time to get serious about paying it off. The only way to free up your money is by getting rid of the very thing that’s holding it hostage—your debt. So, if you want to start keeping more of your hard-earned dollars each month, you’ve got to get in the right mindset to get rid of it once and for all.

2. Stop borrowing money.

This is unpopular advice, but you can’t get rid of your debt until you stop the cycle of borrowing. If you’re not using your credit card, you’re not adding to your balance. To do that, you’ve got to start living within your means. So, if you can’t afford it, you can’t have it. And that goes for the stuff your kids want too. “No” is a complete sentence.

3. Follow the Baby Steps.

The Baby Steps have helped millions of families get out of debt, save for emergencies, and build wealth. When you decide you’ve had it once and for all with borrowing money, use the Baby Steps to help you take control of your money and change your life for the better. Believe us—it works.

4. Use the debt snowball method.

The debt snowball method is the best way to pay off debt. It’s worked for millions of families all across America, and if you’re serious about it, it can work for you too.

The debt snowball is the tool that helps families get through Baby Step 2: paying off all debt (except the house). What you’ll do is list your debts from smallest to largest, no matter the interest rate. Pay minimum payments on everything but the smallest. Use any extra money you can squeeze from the budget to throw at the smallest debt. Once it’s paid off, you’ll take the minimum payment from that debt and add it to the payment on the next-smallest debt. Keep going, and you’ll be amazed how quickly you can get out of debt with that giant snowball.

Get Out of Debt for Good

As the saying goes, there’s more than one way to skin a cat. (We’ve never skinned a cat, so we’ll take their word for it.) But when it comes to paying off debt, there’s only one way: to just get out of debt. No amount of “instant” debt fixes (like a credit card balance transfer) will actually take care of your debt. It will only keep you in debt longer.

It’s time to decide right now that you’re done borrowing money. Follow the Baby Steps, use the debt snowball, and get out of debt—once and for all.

Don’t worry you don’t have to figure all of this out for yourself! We’re going to be with you every single step of the way with Ramsey+. With your membership, you’ll get digital content, courses and tools to help you take control of your money. And with resources like Financial Peace University and EveryDollar, you’ll pay off debt and save more money faster. Think about it as your financial guide giving you small steps that lead to big wins with your money.

Get your free trial right here.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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