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The Trouble With Balance Transfers

posted on Tuesday, June 2, 2020 in Education

woman reviewing her bills

Whether they are sent to your mailbox or your inbox, nearly every credit card carries with it an offer for balance transfers. While a balance transfer can be a powerful tool to help you get your finances on track, they can also add to your financial troubles if not used correctly.

Everyone’s financial situation is different and it is up to each individual to determine if a balance transfer would work for them. Before making that decision, it is important to make sure you know how a balance transfer could potentially worsen your situation.

Balance transfer offers allow consumers to consolidate their debt, often with promotional periods of 0% or other low interest rates. Other factors to consider include: 

  • Promotional rates are typically approved only for consumers with an excellent credit history. If you don’t qualify for a promotional interest rate, the transfer could cost you a lot more in the long run.
  • Promotional interest rates typically end after six, 12 or 18 months. If you don’t pay off the balance in full by the time the promotional period expires, your interest rate will not only rise to your standard APR, but you may also be charged back-interest, which is interest over the entire time period in which you carried the balance.
  • There is usually a fee to complete the transfer — often at 3% of the transfer amount. If the amount you will pay for the transfer is more than what you would pay in interest on your old card, then it is not worth the cost.
  • Completing a balance transfer will give you more credit available on your original credit card. While working to pay off the balance transfer amount, it is critical that you do not incur more debt on the original card. Using that available credit could put you right back where you started.


You have a $10,000 debt on a credit card with an interest rate of 14.56%. You receive a balance transfer with a 3% fee offer that carries a 6.99% interest rate for a period of 18 months. See the breakdown below for what that loan will cost you over the 18-month period if you complete the transfer compared to paying off on your original credit card.

Original Credit Card Balance Transfer
Debt amount (including balance transfer fee) $10,000 $10,300
Interest rate 14.56% 6.99%
Time to pay off debt 18 months 18 months
Monthly debt payment $617.61 $585.28
Total interest paid $1,117 $545

In this scenario, the balance transfer will cost you substantially less in interest and provide you with a lower monthly payment. As long as you are able to keep other debts from accruing during the 18-month period and you are able to pay it off before the promotional period ends, this would be a good deal. But with a fairly high monthly payment, this plan could easily cause problems if/when unexpected expenses arise.

Speak With A Personal Banker 

Complete the form below and speak with a Personal Banker to learn more about how to manage debt or to determine if a balance transfer could be a good option for you. 

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