What Is a Balance Transfer on a Credit Card?

A balance transfer lets you move debt from one credit card to another, usually to take advantage of a lower promotional interest rate.

It can help reduce borrowing costs while you pay down your balance, but transfer fees and promotional deadlines can affect how much you actually save.

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With KOHO Credit Builder, you can:

• See an average credit score increase of 74 points*
• Get approved without a hard credit check or minimum deposit
• Pay no interest on the line of credit
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How Does a Balance Transfer Work?

Suppose you owe $5,000 on a credit card charging a high interest rate.

You apply for another card offering a promotional balance transfer rate and move the $5,000 balance to the new card.

Instead of paying the original card's interest rate, you pay the promotional rate for a limited period.

The goal is to use that lower rate period to reduce as much of the debt as possible.

Why Do People Use Balance Transfers?

The main reason is to save on interest.

A lower rate can allow more of each payment to go toward the principal balance rather than interest charges.

Balance transfers can also make repayment easier if you combine multiple credit card balances onto one card.

However, moving debt does not reduce the amount you owe.

You still need a repayment plan.

Do Balance Transfers Have Fees?

Usually, yes.

Many balance transfer offers charge a fee based on the amount you move.

For example, a 3% transfer fee on a $5,000 balance would cost $150.

That fee is generally added to your new credit card balance.

Before transferring, compare the fee with the interest you expect to save.

How Long Does a Promotional Balance Transfer Rate Last?

Promotional periods vary by card.

A reduced rate may last for several months before the card's regular interest rate applies.

Check:

• The promotional interest rate
• How long it lasts
• The transfer fee
• The regular rate afterward
• The deadline for completing the transfer

A low promotional rate is most useful when you can repay a large portion of the debt before it expires.

What Happens When the Promotional Period Ends?

Any remaining balance generally begins charging the card's regular applicable interest rate.

That rate can be substantially higher than the promotional rate.

For example, if you transfer debt at a low rate for 10 months but still have a large balance when the promotion ends, your borrowing costs can increase significantly.

Calculate how much you need to pay each month to clear the balance before the promotional period expires.

Can You Transfer a Balance Between Cards From the Same Bank?

Often, no.

Credit card issuers commonly restrict promotional balance transfers between accounts issued by the same financial institution.

A balance transfer is usually designed to move debt from another lender.

Check the offer's terms before applying if you already know which balance you want to transfer.

How Much Can You Transfer?

Your balance transfer cannot normally exceed the available limit on your new card.

The transfer fee may also count toward that limit.

For example, if your new card has a $5,000 limit, you may not be able to transfer the full $5,000 because there needs to be room for the transfer fee.

The issuer may also set a separate maximum balance transfer amount.

Can a Balance Transfer Hurt Your Credit Score?

It can affect your credit profile in several ways.

Applying for a new card may result in a hard credit inquiry.

Opening the account can also reduce the average age of your credit accounts.

On the other hand, receiving additional available credit could lower your overall utilization if your spending does not increase.

The biggest factor is how you manage the debt afterward.

Missing payments or accumulating additional balances can negatively affect your credit.

Should You Close the Old Credit Card?

Not necessarily.

Closing the old card reduces your total available credit and may increase your credit utilization ratio.

It can also affect the age of your credit history.

However, keeping the card open may not be helpful if it encourages you to accumulate more debt.

You could consider:

• Keeping it open but not carrying it
• Removing it from shopping apps
• Lowering the credit limit
• Closing it if the card has a fee or encourages overspending

The right decision depends on your financial habits.

Can You Make New Purchases on a Balance Transfer Card?

Usually, yes, but it may not be a good idea.

New purchases may be subject to a different interest rate from the transferred balance.

Your payments may also be allocated between different balance types according to the card's terms.

If your goal is to eliminate debt, consider using the balance transfer card only for repayment until the transferred balance is gone.

Balance Transfer vs. Personal Loan

Both can be used to consolidate credit card debt.

A balance transfer may offer a very low promotional rate for a limited period.

A personal loan typically has:

• A fixed loan amount
• Scheduled payments
• A longer repayment period
• A set end date

A personal loan may be easier to manage if you need more time to repay.

A balance transfer may save more interest if you can eliminate the debt during the promotional period.

Balance Transfer vs. Line of Credit

A line of credit can also be used to pay off credit cards.

Unlike a promotional balance transfer, a line of credit generally does not have a temporary introductory rate.

However, its regular interest rate may still be lower than a credit card's.

A line of credit is revolving, so you can borrow again after repayment.

That flexibility can be useful, but it can also make it easier to remain in debt.

When Is a Balance Transfer Worth It?

A balance transfer may make sense when:

• The promotional rate is significantly lower than your current rate
• The transfer fee is reasonable
• You can make substantial monthly payments
• You have stopped adding new debt
• You can repay most or all of the balance before the promotion ends

Calculate your monthly target before transferring.

If you move $6,000 to a card with a 12-month promotional period, you would need to pay roughly $500 per month, plus any fees or interest, to clear it within a year.

When Should You Avoid a Balance Transfer?

It may not help if:

• The transfer fee is too high
• You cannot qualify for enough credit
• The promotional period is too short
• You plan to continue using the old cards heavily
• You can only afford minimum payments
• The regular rate after the promotion is very high

A balance transfer works best as part of a debt repayment strategy rather than as a way to create more available credit.

How to Use a Balance Transfer Effectively

If you decide to transfer your debt:

1. Calculate the total transfer cost.
2. Know when the promotional rate ends.
3. Divide the balance by the number of months available.
4. Set up automatic payments.
5. Avoid new purchases on the card.
6. Stop adding balances to the old cards.
7. Pay off the transferred balance before the regular rate applies.

A balance transfer can reduce interest and make debt repayment easier, but the savings depend on what you do after the transfer.

*Based on users with a starting score of 450 or under and who used all of our credit building tools (i.e. Credit Building, Secured Credit Building) for 12+ months with on time payments. Credit building tools we offer are not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.