Bank cards are in the colors of living coral and blue with shiny yellow coins symbolizing the electronic exchange of money. Concept: What is Balance Transfer?
By: rkapur
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What is Balance Transfer? Is it a Good Idea?

Many small business owners rely heavily on credit cards for their cash needs. They are easy to use and offer additional benefits. But there are downsides, as well. Before you know it, you could have accumulated an unmanageable amount of debt. 

Fortunately, credit card balance transfer could offer a way out. 

In this post, we’ll examine what is balance transfer, how it works, and whether it is a good idea for you.

What is balance transfer?

Credit card balance transfer is a method to move debt from one credit card to another. It can help you save money by reducing your interest cost. 

There could be other advantages, too:

  • Lower penalties and fees – your new credit card could offer reduced charges and annual fees. 
  • More reward points – these could entitle you to gift cards, travel benefits, or even cash.
  • 0% interest on your balance transfer – it’s hard to believe, but true. Your balance may not attract any interest at all for a period of six to 21 months from the date of transfer. Many credit card issuers offer promotions to attract new customers. This benefit alone could save you hundreds of dollars.

Man and woman sitting in cafeteria discussing finance for the month. Stressed couple looking at bills sitting in restaurant wearing uniform apron. Café staff sitting together looking at expenses and bills. Concept: what is balance transfer

When you are trying to understand what is balance transfer, remember that it always refers to moving debt from one credit card to another. However, this is not the only solution to high-cost and hard to manage credit card debt. 

You can also pay off credit cards with a debt consolidation loan

It is also possible to repay the outstanding amount on your credit card with some business loans. Of course, these types of loans are only available for repaying business debts. You can’t pay your personal expenses with a business loan. 

How a balance transfer works

The next step in understanding what is balance transfer is to know how it works. 

It’s important to know that a balance transfer doesn’t eliminate your debt. You are only paying off one credit card and moving the debt to another. The objective of a balance transfer is to lower the cost of your debt.

Let’s understand what is balance transfer and its impact on your interest cost with an example:

Assume that your credit card balance is $20,000 and your card carries an interest rate of 17% per year. If you want to pay off your entire balance in 12 months, how much would you pay every month? A payment of $1,824.10 per month would be required.

Now, consider the same outstanding balance of $20,000 and 12 monthly payments, but a reduced interest rate of 12%. In this scenario, your monthly payment would be $1,776.98. Over a year, you’d save $565. 

You can save $565 ($21,889 – $21,324) by transferring your balance from a card that charges an interest rate of 17% per year to one with a rate of 12%. 

You can carry out calculations for different outstanding amounts and varying interest rates and repayment periods by using a Payoff Calculator

stack of multicolored credit cards, close up view with selective focus. concept: What is Balance Transfer?

Is a balance transfer a good idea?

Now that we have understood what is balance transfer and how it works, let’s go into the question of whether it is a good idea. 

When used correctly, transferring the balance on your credit card can help you control your debt and bring a certain degree of discipline to your company’s finances. But a balance transfer could also harm you.

When you’re trying to get your head around what is balance transfer, you should remember there are other problems, too. 

The new card issuer may impose fees for the balance transfer. A fee of, say, 2% on an outstanding balance of $20,000 is $400. This could wipe out, or substantially reduce, any savings from a decrease in the interest rate.

Or maybe, when you transfer your debt to a new card, and the limit on your existing card becomes available once again, you could be tempted to use this reinstated limit, adding to your overall debt.

So, should you take up a new balance transfer offer? 

Evaluate the advantages carefully and sign up for the new card only if you’re sure that it will help you to save money and lower your total debt.

How to do a balance transfer

Here’s a step-by-step guide to transferring your credit card balance:

1. Find a good balance transfer card 

The best cards are those with long 0% interest promotional periods, no annual fees, and low balance transfer fees. 

2. Ensure that the total costs on your new card are lower than those on your existing card 

It’s easy to be attracted by a 0% interest offer on a balance transfer card. But you also need to check how long the promotional period is valid for and the rate that will be charged after it is over. Additionally, don’t forget to consider other fees. Your new card should help you to save money, not increase your debt.

3. Apply for the new card 

Your credit score helps determine whether your application gets approved. Keep in mind that some cards require high scores. According to, the Discover it Balance Transfer card requires you to have a score in the range of 670 to 850. 

However, if you have a lower credit score, you can still pay off your high-cost debt, you just need to consider other options, like a loan.

4. Request the balance transfer 

It may take a few days or even more for the balance transfer to be processed. While you’re waiting, make sure that you keep up the minimum payments on your existing card.

Men shopping construction material online during kitchen renovation on smart phone. concept: What is Balance Transfer?

Keep in mind that there are options to balance transfer cards if you are trying to reduce your interest costs. You can consider using a debt consolidation loan instead. This could be a more straightforward and lower-cost option.

How to choose the best balance transfer card

Now, let’s look at what is balance transfer from the point of selecting the best balance transfer card. Your choice should be based on three critical issues:

  • Balance transfer fees – expect to pay fees of between 3% and 5% of the outstanding balance. Try and identify the card with the lowest fees.
  • Promotional APR – check if an introductory 0% APR is available. How long is it valid for? What is the interest rate after this period? The answers to these questions will tell you whether it makes sense to go ahead and apply for the balance credit card in question.
  • The benefits that the new card carries – finally, does the card provide an attractive rewards program or a cashback offer?

Pros and cons of balance transfer

Here’s a list of the advantages and disadvantages to consider when thinking of doing a balance transfer:

Pros Cons
It can help you to save on interest costs. Balance transfer fees may eat up your interest cost savings.
It can help you become debt-free within a specific period. Your existing card’s limit would now be unutilized. You may be tempted to use this card again, leading to an additional debt burden.
You could choose a card with additional benefits, like reward points or cash back. Some cards offer a cash bonus after you spend an initial minimum amount. When the promotional period is over, the interest rate may be higher than your existing rate.
Your new balance transfer card may not carry any annual fees. You may not be eligible for a balance transfer card because of credit score requirements.
A new balance transfer card may make life simpler. You could transfer the balances from multiple cards to your new card. A new balance transfer card may lead to a drop in your credit score if your total credit utilization goes up.

What is balance transfer? It’s a way to lower your debt

Balance transfer cards can save you money and help you make a fresh start with managing your debt. But you need to examine the long-term costs of these cards carefully. Sometimes, they can provide an immediate benefit but prove to be more expensive over an extended period.

When you are thinking of paying off credit card debt, don’t restrict yourself to balance transfer cards. 

A debt consolidation loan may offer a better option. 

Request a quote for a business loan today. We can provide instant pre-approval, and funding within 3-10 days. At Camino Financial we take our motto, “No business left behind,” very seriously.

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