The basics of balance transfer credit cards

Balance transfer credit card offers can save you a significant amount of money as long as you understand how they work.

According to the Federal Reserve, the average credit card interest rate across all accounts was 12.51 percent in the third quarter of 2016. That interest can quickly compound when you’re trying to pay off accumulated debt on your credit card

But what if there was a way to pay zero percent interest? Believe it or not, there is. If you’re approved for an introductory, zero-percent APR balance transfer credit card, you can usually transfer debt to save money. The idea is you open a new card with a zero percent (or very low) interest rate for a set time (for example, 18 months), move over the balance from your old, high-interest card, and pay off the debt! If you’re thoughtful about it, you may be able to pay down the entire amount before the introductory period ends, saving yourself from accumulating (and having to pay off) months worth of interest. Here’s how to do it.

Make sure you qualify

The first step to saving money is finding out if you qualify. The largest factor in determining approval for most credit cards is your credit score. Check to see if your credit card issuer can provide your score for free — Wells Fargo customers can receive their FICO score online, or your credit card company may provide the same. Next, research the credit score needed to qualify for the credit card you desire. Usually, you’ll need a good or excellent score to qualify for the best offers.

 Understand possible fees, penalties, and other rules

Transferring your debt to an introductory zero-percent APR balance transfer card isn’t always free. In fact, most credit cards charge a balance transfer fee. Fees differ depending on the card, but you should expect to pay at least three percent when transferring a balance.

You should also make sure you have a plan to never miss a payment. The introductory zero-percent interest rate may disappear if you miss a payment. Your rate may increase to the regular or penalty interest rate detailed in your application. Sometimes the new rate is even higher than the interest rate you previously paid on your debt. Additionally, once the introductory period ends, you’ll be paying the regular interest rate if you haven’t paid off the balance transfer amount in full.

You should always read the rules of the balance transfer promotion carefully before applying. Some offers only apply the zero-percent interest rate to balance transfers made within the first 30 to 60 days after you open your account.

Know what debt you can transfer

You can’t always transfer all debts to an introductory zero-percent APR balance transfer credit card. You will likely have a balance transfer credit limit that could prevent you from transferring larger debts. You may not be able to transfer debt from another credit card issued by the same bank, either.

Finally, make sure you read the fine print about balance transfers on the credit card application before you apply. Some banks will not allow you to transfer certain types of debt, such as student loan debt. If you aren’t sure if the debt you want to transfer qualifies for the promotion, call the credit card issuer and speak with a representative before applying.

With a little forethought and planning, balance transfer credit card offers can save you money. You just have to make a strategy, follow the rules, and commit to paying down that balance!

The power of compounding

The table below shows how quickly interest can add up, assuming you start with $3,000 in debt and are not making any payments.

Amount owed Total interest paid (12.51% APR)
Day 1 $3,000.00 $1.03
Day 30 $3,029.90 $30.93
Year 1 (Day 365) $3,397.63 $398.79
Year 2 (Day 730) $3,849.29 $850.60
Year 3 (Day 1095) $4,360.98 $1,362.47

Check out the Wells Fargo Platinum Visa Credit Card, which has a low APR on balance transfers.