You can transfer a higher-interest debt (From a different credit card, personal loan, car loan, or home loan) to a credit card with a lower interest rate. Many banks will allow only the transfer of balances to a credit card. Very few will allow you to transfer the balance to your checking account, which you can use to pay off your other loans.
Some of the banks allow the transfer of balance to your checking account.
- Bank Of America
- Barclays
- Discover
- Chase
Balance transfer credit cards offer typically come with an interest-free introductory period of six to 18 months. There will be a transaction fee ranging from 3% to 5%. There are very few credit cards with 0% transaction fees.
The interest rate will be higher when you transfer your balance from a credit card to a checking account. The interest rate will be lower when transferring a balance from one credit card to another. However, looking at interest rates if you pay the money before the promotional rate period is unnecessary.
Getting a new credit card is unnecessary to get a balance transfer offer. Your existing credit card may provide 0% balance transfer offers. Log in to your bank web portal and check for balance transfer offers. Banks provide credit card balance transfers with some interest rate or 0% APR. You must check the interest rate before availing of this offer. If you are paying a higher interest rate than the offer provided by a credit card, then it is wise to transfer the balance.
How to calculate interest on credit card balance transfer
We have considered the transaction fee as interest. You might fall under any of these criteria
| APR and Transaction fee | Interest |
| 0% APR with 3% transaction fee | 3% |
| 0% APR with a 3% transaction fee | 9% |
| 0% APR with a 0% transaction fee | 0% |
What is 30% of your credit card limit?
Using more than 30% of your available credit on your cards can hurt your credit score. But it is ok to hurt your credit score for some time if you can save some money on interest. It is temporary. Once you start paying monthly payments, your credit score will improve. Your credit score will go much higher than the person who has money in his account without any transactions.
Calculation is simple
| 100 | 30% (Utilization limit percentage) |
| $6000 (credit card limit) | ? (30% limit) |
6000X30/100 = $1800
$1,800 is 30% of your credit card limit.
How credit card balance transfer is calculated
If your credit card limit is $6000. You can withdraw
Balance transfer Amount + Interest (3%) = $6000 (Your credit card limit)
Let us consider
Balance transfer Amount as X and Interest as Y
- X + Y = 6000
- X = 6000 – Y
- Y = 6000 – X
| 100 | 3% (Interest) |
| X | Y |
We must find X and Y. What we know is, that for $100 the interest is $3
- 100Y =3X
- 100(6000 – X) = 3X (substituting Y with 6000 – X)
- 600000 – 100X = 3X
- 600000 = 100X + 3X
- 600000 = 103X
- X = 600000/103
- X = 5825.24
Now we must find Y. The formula to find Y is
- Y = 6000 – X
- Y = 6000 – 5825.24
- Y = 174.76
The maximum amount you can transfer from your credit card is $5,825.24.
You will be charged $174.76 as interest
- X+Y = 6000
- $5,825.24 + $174.76 = $6000
If you do not want to hurt your credit score. Then you can avail 30% of your credit card limit. We already calculated 30% of $6000. It is $1800. We will update our balance transfer with the new limit ($1,800)
- X+Y = 1800
- X = 1800 – Y
- Y = 1800 – X
| 100 | 3% (Interest) |
| X | Y |
We must find X and Y. What we know is that for $100 the interest is $3
- 100Y =3X
- 100(1800 – X) = 3X
- 180000 – 100X = 3X
- 180000 = 100X + 3X
- 180000 = 103X
- X = 180000/103
- X = 1,747.57
Now we must find Y. The formula to find Y is
- Y = 1800 – X
- Y = 1800 – 1,747.57
- Y = 52.43
The maximum amount you can transfer from your credit card’s 30% limit is $1,747.57.
You will be charged $52.43 as interest
X+Y = 1800
$1,747.57 + $52.43 = $1800
Things to keep in mind
- This will affect your credit score. It is a good idea to utilize 30% of your credit card. i.e., If your limit is $10000, do a balance transfer for $3000. But it is okay if you hurt your credit score for some time. But once you start paying monthly payments. Your credit score will improve.
- There will be a minimum payment on a 0% APR credit card. It will usually be 1% of the total balance. Very few banks (Discover) charge 2% of the total balance. Once an introductory 0% APR period ends, the minimum payment will increase to include any interest charges added to the total balance since the last statement date. If your balance is less than $1,000, you’ll pay a fixed floor rate, usually around $25 for minimum payments. The fixed-rate varies by card. For example, if you have a small balance of less than $25, your minimum payment will be total.
- After the promotional period, you will end up paying huge interest. So, plan accordingly and complete the balance before the promotional period.
- Assume you transferred a balance of $4800 with 0% APR for 12 months on January 1. Then prepare a chart something like this
- 4800/12 = $400 monthly payment – It is not necessary to pay this amount, but it makes your final payment easy.
| Date | Outstanding Principal | Monthly Payment | Current Outstanding |
| Jan 01, 2020 | 4800 | 0 | 4800 |
| Feb 01, 2020 | 4800 | 400 | 4400 |
| Mar 01, 2020 | 4400 | 400 | 4000 |
| Apr 01, 2020 | 4000 | 400 | 3600 |
| May 01, 2020 | 3600 | 400 | 3200 |
| Jun 01, 2020 | 3200 | 400 | 2800 |
| Jul 01, 2020 | 2800 | 400 | 2400 |
| Aug 01, 2020 | 2400 | 400 | 2000 |
| Sep 01, 2020 | 2000 | 400 | 1600 |
| Oct 01, 2020 | 1600 | 400 | 1200 |
| Nov 01, 2020 | 1200 | 400 | 800 |
| Dec 01, 2020 | 800 | 400 | 400 |
| Jan 01, 2020 | 400 | 400 | 0 |