As inflation rises and interest rates soar, consumers across the country are contending with growing credit card balances. Household credit card debt across the U.S. is at near-record levels, rising nearly 20% year over year, according to a first-quarter 2023 study by TransUnion.
For consumers concerned about high-interest debt, performing a balance transfer is an attractive option for avoiding credit card interest. Balance transfer credit cards offer a 0% annual percentage rate (APR) on transferred balances for a certain period of time — sometimes as long as 21 months — giving you time to pay down your debt without extra interest charges adding up.
While helpful, these cards aren’t a catch-all solution to consumers’ debt problems. Consumers “still have to address their spending relative to earnings and avoid perpetuating further debt," says Trent Graham of GreenPath Financial Wellness, a nonprofit that specializes in financial counseling and debt management. From small technical errors to larger money management woes, these seven common balance transfer credit card mistakes can make the difference between saving money through a credit card balance transfer and simply racking up more debt.
1. Trying to transfer a balance between cards with the same issuer
Credit card issuers earn money, in part, on the interest consumers pay. When they offer low introductory interest rates, such as the 0% APR offers available on many balance transfer credit cards, that presents a loss to the company on profits from interest, in exchange for gaining new business. That’s why, in most cases, you can’t transfer a credit card balance from one card to another if both cards are with the same issuer. For example, if you’re carrying debt on a Bank of America® credit card, you can’t transfer that balance to another Bank of America® card.
Instead, you'll have to choose a different bank with which to open a balance transfer credit card. Here are some tips for doing so.
2. Missing the balance transfer deadline
Many balance transfer credit cards have a deadline for completing the transfer — usually somewhere between 30 and 120 days after the account is opened — in order to qualify for the card’s low introductory APR offer. That deadline is different from the introductory APR period, or the length of time during which you'll be charged 0% APR on balance transfers.
For example, let's say you have a credit card with a 0% introductory APR on balance transfers for 18 months, with a balance transfer deadline of 60 days. That means you must transfer any balances within about two months of your application being approved in order to qualify for the introductory interest rate. Any balances transferred 61 days after account opening and beyond will accrue interest at the card’s normal ongoing APR (which will generally be much higher).
If you're the forgetful type, consider setting up alerts or calendar reminders. Even lower-tech methods like sticky notes and spreadsheets can help you keep track of your promotional offers and timelines.
3. Not taking into account the balance transfer fee
A balance transfer credit card can save money on interest, but it’s not without cost. In most cases, the amount you move over will be subject to a balance transfer fee — typically 3% to 5% of the total amount transferred. Let’s say, for instance, that you transfer a balance of $10,000 to a card with a 3% balance transfer fee. That $300 fee would be added to your new credit card balance, making your total balance on the new card $10,300.
Balance transfer fees can add up, so it's important to factor them into your decision. If you can find a card with a 0% APR on balance transfers for a long period of time, and you need that time to pay off the balance, it can be worthwhile. But if you can pay off the existing balance within a few months, you may be better off sticking with your current card. A balance transfer calculator can help you weigh the fee vs. the interest you're paying.
4. Overestimating how much debt can be transferred
Just like other credit cards, balance transfer credit cards come with a credit limit, and that limit will dictate the size of balance that you can transfer. For example, if you have $10,000 in high interest credit card debt to pay off but only get approved for a $2,500 limit, you’ll only be able to transfer a portion of that debt.Of course, you can revolve that credit limit just like with any other card — transferring an additional balance once the original sum is paid off. But given the balance transfer deadline discussed above, it may be difficult to transfer a significant amount while qualifying for the card’s low introductory interest rate. And given the balance transfer fees involved, it may be expensive, too.
Still, attacking your debt in chunks is better than not attacking it at all, and it might even make a large balance seem more manageable. In the example above, you're still getting a respite from interest on $2,500 worth of debt. And remember: You can always ask the issuer (politely) for a higher limit. There's no guarantee, but there's also no penalty for asking.
5. Making only the minimum payment
As Graham of GreenPath Financial Wellness points out, it's not uncommon for the minimum payment on a balance transfer credit card to be very low relative to the total balance owed, especially during the introductory 0% APR period.
“I've seen a $10,000 balance with maybe an $80 payment a month for the time that says 0%,” Graham says, noting that these low required payments may give consumers a false sense of security that their budget is in hand when in reality, that minimum payment won’t cover the majority of the outstanding balance within the promotional 0% interest period.
Instead, cardholders who make a balance transfer should divide the total balance by the number of interest-free months available to calculate their ideal monthly payment. For example, if you have a $10,000 balance with a 0% interest period of 18 months, you’ll need to make payments of about $560 per month in order to pay down the full balance during that period.
6. Continuing to spend on your credit cards
Once you've transferred a balance to a balance transfer credit card, it's tempting to continue using the previous card, or to use the balance transfer card itself for ongoing purchases. But this can lead you to rack up more debt, especially if you’re in a cycle of using credit cards to supplement your income.
In Graham’s experience, many consumers point to high interest rates as the source of their financial trouble and think that a balance transfer card is the solution. “But it's really not the interest rate,” Graham says. “It's the fact that they're overspending with their expenses compared to their income.”
Without solving that core problem, continuing to spend on the previous card will only make your debt problems worse. The solution may include moving spending to a debit card or a cash-based system for the time being, as you pay down your existing balance.
7. Not having a debt management plan
Most importantly, Graham emphasizes that a balance transfer card in itself is not a debt management solution. Even at a reduced interest rate, the debt still has to be paid. That means you need a plan in place — a budget — to spend less than you earn and make regular payments toward your balance.
“It really comes back to writing down your cash coming in compared to cash going out without using credit at all,” Graham says. If consumers struggle to strike that balance on their own, they may be better served by a more structured debt management program that includes financial counseling and guidance toward reducing payments and interest.
Without such a solution in place, Graham notes, consumers who open balance transfer credit cards can easily find themselves simply racking up new debts while paying off the old balance.
