The Pros and Cons of Balance Transfer Credit Cards

Is a balance transfer card a good idea?

Dealing with credit card debt can often feel like drowning, or at least treading water indefinitely. With compounding interest piling on, it's hard to see encouraging progress even when you're doing your best to make payments on time, but with the interest-free periods on balance transfer cards (which are often for 12 to 20 months), you can actually make a dent. NerdWallet credit card expert Sara Rathner says balance transfer cards "can save you hundreds or even thousands of dollars in interest payments when you are paying off credit card debt." That's a pretty good way to start swimming toward a debt-free future.

However, a balance transfer card isn't the best, or even a viable option for everyone. Before determining if a balance transfer card is a good idea for you, there are three primary considerations you need to take into account: your credit score, your timeline, your spending, and the balance transfer fee.

(Read the full podcast transcript.)

Things to consider before using a balance transfer card to pay off debt

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Your credit.

Most balance transfer cards require good or excellent credit to qualify, which is a score of 670 or higher. "That's simply because the bank is lending you money at 0% interest," Rathner explains. "They don't want to lend money to somebody they consider to be riskier and so they curtail who they will lend that amount of money to." She also adds, "At the onset of the pandemic, when there was a lot more uncertainty, a lot of these kinds of cards were limited to people with excellent credit only. So their availability can fluctuate depending on economic conditions."

So before going further into the process of seeking out a balance transfer card, evaluate your credit score to see if you would qualify. If you don't meet the credit score requirements, a personal loan—which typically has more lenient credit requirements—may be an alternative option for you to tackle credit card debt. With a personal loan, you borrow a set amount of money at a fixed interest rate and make equal monthly payments on that loan for a set period of time. "Depending on your personal financial situation, your credit score, you might qualify for a loan that charges a lower interest rate than credit cards do, which would allow you to consolidate debt for multiple cards into one monthly payment, which makes budgeting so much easier," Rathner says.

However, a personal loan doesn't come without cautions of its own. As financial expert Cindy Zuniga-Sanchez, founder of Zero-Based Budget Coaching, says on the Money Confidential podcast, it's crucial to be mindful of the terms and have a plan for your spending so you don't end up in more debt.

"You need to walk in with a plan because in either of those situations, in the balance transfer situation or the personal loan situation, if you do not walk in with a plan, you could actually wind up being in a worse position," she says.

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Your timeline.

The interest-free period on a balance transfer card can be a huge help—but it doesn't mean you can just push your debt-related worries aside the entire time. "If you don't pay off your credit card debt in those 18 months, you now get faced with a nice fat statement that says you've been kicked back up to 25% interest," Zuniga-Sanchez explains.

So, for that reason, it's crucial to be very clear on your timeline and make a payment plan. "You want to know that you can comfortably time your payments on this debt so that ideally by the time the 0% interest promotion is over, you've paid your balance down completely," Rathner says. However, that's not absolutely required, she adds, but it's important to still keep a timeline in mind, even when that interest-free period is up. "[A balance transfer card] can still save you money if you pay [your remaining] balance off pretty quickly, even after the promotion ends, but if you maintain that balance and then add to it and just let your debt go back up to previous levels, that's where you're going to get yourself into trouble," she says.

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The balance transfer fee.

A balance transfer fee isn't always a make-or-break item when deciding on which route to take, but it's something to keep in mind. As Rathner explains, some cards will have no fee, but have shorter 0% APR promotions as a result. "With the cards that charge fees typically you'll see 3% to 5% of the transfer balance, so that's just something to keep in mind because if you're transferring a really big balance, that could be a couple hundred dollars," she explains. While any extra fees could hurt when you're trying to pay off debt, "sometimes it might end up being worth it for you mathematically," Rathner says.

This is part of why it's so important to really "understand your numbers," Zuniga-Sanchez says, when dealing with credit card debt. "Pull out your credit card statements for all of your credit cards, and write down the balance on that card," she says. "Write down your minimum payment that's required—even though, of course, understanding that that will fluctuate month to month, depending on your situation—and then also write down the interest rate." Having this full overview of your numbers will help your determine what move is worth it for you.

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Your spending.

As much as we may wish that we could pause the clock to pay off credit card debt, the reality is that life—and all its costs—continue on. "You're still buying food, you're still paying rent or mortgage, you still need to potentially buy a car, pay for gas, buy clothing for work, things like that," Rathner says. So it's important to factor in your personal expenses when considering a balance transfer card.

"I would caution that if you take out a balance transfer card and you're paying off your debt, but you're still running up credit card debt on other cards, it's a sign that you could potentially be in over your head when it comes to your spending," Rathner adds. If you get to that point, or find yourself struggling to tighten up your spending, it may be time to seek out further assistance. This could mean seeking out non-profit credit counseling services or a financial advisor that can help you budget and make a plan for paying off debt while adjusting your spending.

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