What is a Balance Transfer — And When is it a Smart Move?
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Chances are you’re familiar with the term balance transfer, but that doesn’t mean you know exactly what this process involves, or when it’s a smart move. Opting for a balance-transfer credit card can help improve your financial situation in a variety of ways.
Of course, this type of credit card isn’t right for everyone, so it’s important to conduct research to see if it’s a good choice for you. Keep reading to learn more about balance transfers so you can decide if you want to apply for this type of credit card.
What is a Balance Transfer?
Just as the name implies, a balance transfer allows you to move the balance of a high-interest credit card to one with a lower interest rate. For example, the Navy Federal Credit Union Platinum Card offers a 0.99% introductory APR for 12 months from account opening on balances transferred within 60 days.
This is notable, as many credit cards have a high APR that can quickly turn a little bit of debt into a lot. As of May 2024, the average APR for credit card users carrying a balance is 22.76%, according to the Federal Reserve.
A balance transfer should make it easier to pay off your credit card debt, since the bulk of your monthly payment will go toward paying down your account balance, instead of simply trying to keep up with paying off the interest. If possible, it’s best to pay off all — or most — of your debt during the introductory period, to take advantage of the low interest rate.
How Does a Balance Transfer Work?
If you’re interested in a balance transfer, it’s important to shop around to find the right credit card for your unique financial situation. When you find one, you’ll need to apply and get approved.
Do note, most balance-transfer cards require you to have a good to excellent credit score. This is a FICO Score of 670 or higher on an 850-point scale, according to Experian.
Upon approval, some credit card companies will require you to pay a balance-transfer fee. This is typically 3% to 5% of the debt being transferred, according to Experian.
However, some issuers don’t charge a balance-transfer fee. For example, the Navy Federal Credit Union Platinum Card has no balance-transfer fees, so you’re able to move your balance over without incurring any additional charges.
When is a Balance Transfer a Good Idea?
Opening a balance-transfer credit card can be a smart move for a variety of reasons. Here’s a look at three reasons to consider applying for one:
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1. You’re carrying balances on multiple credit cards.
Keeping track of multiple credit card payments can be difficult. Opening a balance-transfer card can allow you to consolidate your debt, so you only have one monthly payment.
Additionally, you’ll likely be able to score a more competitive interest rate on your balance-transfer card, allowing you to reduce the total amount you’re paying each month.
2. Your credit card has a high APR and a significant balance.
Trying to pay off debt on a credit card with a double-digit APR can feel impossible. When much of your monthly payment goes toward interest instead of lowering your balance, it can feel like you’ll never be able to get ahead.
A balance-transfer card can help, because you’ll be able to take advantage of a low introductory APR that gives you more financial freedom to pay down your debt. The Navy Federal Credit Union Platinum Card offers a 0.99% introductory APR for 12 months.
3. You want to improve your credit utilization rate.
If your current credit utilization rate isn’t ideal, a balance-transfer card may help improve it. Seek out a card with a higher credit limit than the credit card(s) you’re currently using.
This can have a positive impact on your credit score, as credit utilization plays an important role in both VantageScore and FICO credit scoring models. Plus, paying down your credit card faster will also increase your available credit, serving as a double win.
How to Find the Right Balance-Transfer Card
If you’re considering a balance transfer, the Navy Federal Credit Union Platinum Card can be a great option. As noted above, you’ll pay no balance-transfer fee and score a 0.99% intro APR for 12 months from account opening on balances transferred within 60 days.
After that, a variable APR between 11.99% and 18% will apply. This is notably more competitive than the average APR of 22.76% for credit card users carrying a balance as of May 2024.
Additionally, you’ll pay no annual fee, no foreign-transaction fees and no cash-advance fees. Plus, if you’re already a Navy Federal Credit Union member, you can find out if you prequalify before submitting your application, which won’t impact your credit score.
Interested in a balance-transfer card? It’s easy to get started here and save money on interest with a Navy Federal Credit Union Platinum Card.
Bottom Line
Opening a balance-transfer credit card can help improve your financial situation, but it isn’t the right choice for everyone. For example, if you’re only a few months away from paying your credit card balance off, taking this route might not make sense.
Take your unique financial situation into account before deciding if this move makes sense for you. Just remember, if you decide to open a balance transfer card, try to pay off as much of the balance as you can during the introductory APR period.
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