Will a Credit Card Balance Transfer Help Reduce Your Debt?


A question that comes up a lot when you’re working on paying off your credit cards quickly is, “Should I open up a new credit card with a lower interest rate and transfer my current balance to that one?”

Well, the short answer is that it depends on how much debt you have, as well as the fine print of the new credit card you’ll be transferring your balance to.

Here’s the long answer: If you have credit card debt, the first thing you need to do is make a list of all your credit cards, including all the details about each card’s balance, interest rate, and minimum payment. Once you have your list, you can review your interest rates.

Typically, credit cards with interest rates above 8-9% are considered high. So if you notice you have credit cards with interest rates higher than that, you can research other credit card companies to see if you get approved for a new card with a lower interest rate. Often, credit card companies will offer a lower interest rate, sometimes even 0% for balance transfers, for a specific period of time–say, six months. The credit card company will then charge a percentage of the amount you transfer, usually 1-5%, which may still be a better option than leaving the balance on your current card with its high interest rate.

From there, you can work on adding extra debt payments to the credit card with the highest interest rate–see for more details—and make the minimum payment on the new card with the 0% or low interest rate until the debt on the card with the highest interest rate is completely paid off. But please be aware that after the initial low interest rate offer ends on your new card, it can climb back to a higher percentage—and in fact may be even higher than the interest rates on the other credit cards you have. So, bottom line: you have to know exactly how much time you have with the lower interest rate and work on your debt reduction plan accordingly.

Let’s look at an example:
Credit Card 1: Balance $700, 14.99% interest rate, $25 minimum payment
Credit Card 2: Balance $2,100, 21.99% interest rate, $75 minimum payment
Credit Card 3: Balance $1,200, 7% interest rate, $25 minimum payment

So, say you review and find a credit card that approves you for a $3,000 credit line at 14.99% interest and a balance transfer offer of 0% for the first six months, charging 3% for the balance transfer. After reviewing all your debts and your financial plan, you decide you can allocate an extra $175 per month toward debt payments. That means you will pay approximately $300 per month in total debt payments (the minimums on your other cards plus the extra $175). It may make the most sense to do a balance transfer of Credit Cards 1 and 2, as they have the highest interest rates, pay the $84 in balance transfer fees and lock in a 0% rate for six months on the balance of $2,884 ($700 plus $2,100 plus $84).* et’s assume your minimum payment on this new card is $100. During those six months of the 0% interest rate, you can pay the minimum amount due while making extra debt payments to Credit Card 3 (for a total of $200) so you can pay it off before the new credit card interest rate resets. Once you pay it off, you can then allocate the entire $300 to the new credit card.

Of course, as with any financial planning strategy, do your homework and know all the pros and cons of credit card balance transfers before you make any decisions. Work with your financial professional, who can help you understand these strategies further and make sure you’re making the best decisions based on your current financial situation and financial goals.

*Please note that the balance transfer fee may not make the most sense depending on how much credit card debt you have, as well as the interest rates and minimum payments of each debt.

Work with a financial professional who can help you understand if balance transfers make sense for you.