What is a 0% Balance Transfer Card? (And When to Use One)

A guide for those looking to determine whether or not a 0% balance transfer card will help them get out of debt.

What is a 0% Balance Transfer Card?

A balance transfer involves moving your outstanding credit balance from one account to another with more favorable terms.

A 0% balance transfer card is the ideal tool for this scenario, offering 0% APR for a limited time (usually between six and eighteen months). You’ll have a brief window to aggressively pay down your debt without any interest getting in the way.


How Do 0% Balance Transfer Cards Work?

Balance transfers are fairly straightforward in practice, though there are some potential roadblocks that might prevent you from pulling one off.

To give you a better idea of how they work, here’s a quick walkthrough of how you might go about finding and using one:

  1. Shop Around: Unfortunately, balance transfer cards can be difficult to qualify for if your score is below 670. If you’re not quite there yet, wait a while to apply since too many applications can hurt your credit score. When your score is high enough, shop around for the best deals (longest 0% APR period plus lowest annual and balance transfer fees).
  2. Apply: You can usually apply online or over the phone. Just make sure you go for a card with a lender other than your current debt holder since balance transfers are usually only allowed for new customers (as a way to attract new business).
  3. Initiate the Transfer: Make sure to double-check that you’ll be able to transfer your whole debt since some lenders place dollar limits on their transfers. You don’t want to be caught by surprise when $1,400 of your debt is still racking up interest on your old card.
  4. Maintain the Old Card: Don’t assume that the balance transfer will go through immediately. Make sure you keep up with your payments on your previous card until you see that your balance (and any transfer fee) has been moved to the new one.
  5. Pay off the New Card: After the transfer, take full advantage of your 0% interest period. If you’re currently splitting your savings between investing and debt-paydown, it might be a good idea to focus everything on eliminating your debt before the interest resumes.

What Happens if You Don’t Pay Off a Balance Transfer?

Of course, a brief reprieve from interest doesn’t guarantee that you’ll be able to immediately pay off your debt in full, or even that you’ll be able to make all your payments.

Fortunately, if you’re unable to pay off your entire balance during the 0% APR promo period, it’s not the end of the world. Your remaining balance will simply begin to accrue interest at the new lender’s rate.

However, if you’re unable to at least make your minimum payments during the promo period, your lender may cancel the offer and resume charging you interest sooner than you expected.

So make sure you read your card agreement thoroughly to find out:

  • Your interest rate on the balance transferred once the introductory offer ends
  • How many payments you can miss before you lose the 0% APR promo

How Much Can I Save With a 0% Balance Transfer?

To calculate how much you can save with any balance transfer, you’ll need to track down the following:

  • Your balance transfer costs
  • The new card’s annual fee
  • Your foregone interest expense

Here’s an example:

Imagine that you have a credit card debt of $5,000 that’s currently accruing interest at 20% APR. If you could put $250 each month toward paying it down, it would take you 25 months to become debt-free. Over that period, you’d pay $1,133 in interest.

If you could qualify for a 0% balance transfer card that stopped your interest accrual for 18 months, you’d be able to pay off $4,500 of that debt during the promo period, leaving just $500 left over. You’d be able to pay off the remaining balance in just a few months, paying only about $12 in interest.

If your balance transfer fee was 3% ($150 in this case) and the annual fee on the new card was $60, you’d still save a total of $911.

Do Balance Transfers Hurt Your Credit Score?

Balance transfers don’t have a direct impact on your credit score, but they do affect a few other factors that might.

First, whenever you apply for new credit, a lender will perform a hard inquiry to check your credit. This might lower your score by a few points since recent credit activity plays a small part in the calculation.

Second, if you get approved for the new card, it will have a positive impact on your credit utilization rate, which plays a large role in your score. Your utilization rate is your debt divided by your total credit limit. In general, your score will go up the more credit you have available but unused.

Be sure to leave your old credit card open even after the transfer goes through to see these benefits and to avoid reducing the average age of your credit accounts.

Is a 0% Balance Transfer a Good Idea?

At the end of the day, a balance transfer is all about cost savings. If you have the score to qualify for a card and the math works out in your favor, then a balance transfer is probably a good idea.

If your credit score is too low, the cost savings are negligible, or you don’t think you’ll be able to make the payments, then don’t bother. Instead, take a look at some of the other options out there to work toward becoming debt-free.

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