Advantages and Disadvantages of Balance Transfers

You can consolidate several credit card payments into one with a balance transfer.
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Most people have debt early in their lives, whether it's student loans or credit card debt. According to a 2012 study from PNC Bank, people in their 20s have $45,000 in debt on average. One way to consolidate some of that debt is to do a balance transfer to a credit card. Before you consider such a move, however, make sure you know some of the advantages and disadvantages of a balance transfer.

Lower Interest Rates

One of the biggest advantages of credit card balance transfers is lower interest rates. If you have several cards, you can transfer all the balances to the card with the lowest interest rate -- assuming your credit limit is high enough -- thereby saving money on finance charges every month. Many credit card companies also offer low teaser rates to attract balance transfers. For example, you might get an offer from an existing card or a new one for 0 percent interest on balance transfers for 12 months or more.


Balance transfers can make your life easier, especially if you consolidate several card balances into one. Tracking one credit card payment every month is a lot easier than trying to follow three or four, and it makes it less likely that you will miss a payment or pay late. If you do pay late, you'll only be subject to one late fee. You may also be able to lower your monthly debt payment with a balance transfer, giving you more wiggle room to save or pay for other things.


Almost all balance transfers come with a transfer fee, which is typically around 3 percent of the balance. If you are transferring a large balance -- say, $10,000 -- an uncapped fee of 3 percent can be a significant addition and cut into the savings from the decrease in interest rates. To limit the fee you pay, try to find a balance transfer offer in which the fee is capped at a certain amount, such as $100. Keep in mind that if you are transferring more than one balance, you will have to pay the fee on each one.

Fine Print

Balance transfers can be a good debt-reduction strategy, but only if you follow the rules. Make sure you read the fine print so you don't get burned and wind up losing all the savings you hoped to get from the transfer. For example, know what the interest rate will be once any teaser rates expire. You may find out that the regular interest rate is higher than on the card from which you transferred the balance. Keep in mind, too, that many credit card agreements have a clause that any payments be applied to the balance with the lowest rate, meaning that if you use the card for purchases or cash advances, you will pile up finance charges on those balances until you get the low rate balance paid off. One more fine-print trap is that if you are late on a payment, in addition to a late fee, you may lose your teaser rate.

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