Should You Use a Balance Transfer to Pay Off Debt? Pros and Cons

Paying off debt can feel like an uphill battle, especially when high interest rates eat away at your payments. If you’re struggling with credit card debt, you might have heard of a balance transfer as a potential solution. But what exactly is a balance transfer, and is it the right move for you? In this article, we’ll break down the pros and cons of using a balance transfer to pay off debt, helping you decide if it’s a strategy that fits your financial situation.

A balance transfer involves moving high-interest debt, like credit card balances, to a new card with a lower or 0% annual percentage rate (APR) for a promotional period. The goal? Save on interest and pay down your debt faster. However, balance transfers come with fees, risks, and requirements that might not make them ideal for everyone. To help you evaluate this option, we’ll explore how a balance transfer works, its benefits and drawbacks, and key factors to consider. We’ll also share the story of James, a 28-year-old graphic designer who used a balance transfer to tackle his credit card debt—and how our Debt Payoff Calculator helped him plan his journey to debt freedom.

Whether you’re drowning in credit card debt or just looking for ways to save on interest, this guide will give you the tools to make an informed decision. Let’s dive in and see if a balance transfer is the right strategy for you.

What Is a Balance Transfer and How Does It Work?

A balance transfer is a financial strategy where you move debt from one or more high-interest credit cards to a new card that offers a lower interest rate, often 0% APR, for a promotional period. This period typically lasts 12 to 18 months, though some cards offer up to 21 months. The idea is simple: by reducing or eliminating interest charges during this time, more of your payments go toward paying down the principal, helping you clear your debt faster.

Here’s how it works. First, you apply for a balance transfer credit card, which often requires a good credit score—typically 670 or higher. If approved, you’ll transfer your existing credit card balances to the new card. Most balance transfer cards charge a fee, usually 3% to 5% of the transferred amount. For example, if you transfer £5,000, a 3% fee would cost £150. Once the transfer is complete, you’ll make payments on the new card, ideally paying off the balance before the promotional period ends. After the 0% APR period, any remaining balance will be subject to the card’s standard interest rate, which could be 20% or higher.

Balance transfers are most commonly used for credit card debt, but some cards allow transfers from other types of debt, like personal loans, depending on the issuer’s policies. The process can take a few days to a few weeks, and you’ll need to continue making payments on your old cards until the transfer is complete to avoid late fees or penalties. Understanding these mechanics is key to deciding if a balance transfer aligns with your debt repayment goals.

Pros of Using a Balance Transfer

Balance transfers can be a powerful tool for paying off debt, offering several benefits that can save you money and accelerate your journey to financial freedom. Let’s explore the key advantages.

Save on Interest Payments: The biggest benefit of a balance transfer is the potential to save on interest. If you’re paying 20% APR on a £5,000 credit card balance, you’d accrue £1,000 in interest over 12 months if you only made minimum payments. By transferring that balance to a card with a 0% APR for 12 months, you’d pay no interest during that time (aside from the transfer fee). This means every pound you pay goes directly toward reducing your debt, not lining the pockets of your credit card company.

Pay Off Debt Faster: With no interest accruing, you can pay down your balance more quickly if you maintain the same payment amount. For example, if you were paying £500 per month on that £5,000 balance at 20% APR, a significant portion would go toward interest. At 0% APR, that entire £500 reduces your principal, allowing you to pay off the debt in just 10 months instead of 12 or more. You can use our Debt Payoff Calculator to see exactly how much faster you can become debt-free with a lower interest rate.

Consolidate Multiple Debts: If you have balances on several credit cards, a balance transfer can simplify your finances by consolidating them into one payment. Instead of juggling multiple due dates and interest rates, you’ll have a single balance to manage. This can reduce stress and make it easier to track your progress toward paying off your debt.

Potential for Better Financial Discipline: A balance transfer can also serve as a fresh start, encouraging you to focus on paying off your debt without the burden of high interest. By committing to a plan to pay off the balance during the promotional period, you can build better financial habits that last long after your debt is gone.

These benefits make balance transfers an attractive option for many, but they’re not without their downsides. Let’s look at the potential drawbacks to ensure you’re fully informed.

Cons of Using a Balance Transfer

While balance transfers offer significant advantages, they also come with risks and costs that can make them less appealing for some people. Here are the key cons to consider.

Balance Transfer Fees: Most balance transfer cards charge a fee, typically 3% to 5% of the transferred amount. For a £5,000 balance, a 3% fee means you’ll pay £150 upfront, which increases your total debt to £5,150. While this fee is often less than the interest you’d pay on a high-APR card, it’s still an additional cost to factor into your decision. If your debt is small or you can pay it off quickly without a transfer, the fee might outweigh the interest savings.

High Interest After the Promotional Period: The 0% APR is temporary, and once the promotional period ends, any remaining balance will be subject to the card’s standard interest rate—often 20% or higher. For example, if you transfer £5,000 and only pay off £3,000 during a 12-month 0% period, the remaining £2,000 will accrue interest at the new rate, potentially 22%. This can negate some of the savings if you don’t pay off the balance in time.

Credit Score Impact: Applying for a new credit card involves a hard inquiry, which can temporarily lower your credit score by a few points. Additionally, opening a new account reduces the average age of your credit history, another factor in your score. While these effects are usually minor and temporary, they’re worth considering if you’re planning to apply for a loan or mortgage soon. On the flip side, paying off debt can improve your credit utilization ratio, which may boost your score over time.

Risk of Accumulating New Debt: A balance transfer doesn’t address the root cause of your debt. If you transfer your balance but continue using your old credit cards for new purchases, you could end up with even more debt. For example, if you transfer £5,000 but then charge £1,000 on your old card at 20% APR, you’re back to paying high interest on new debt while still working on the transferred balance. This can create a cycle of debt that’s hard to break without disciplined spending habits.

These drawbacks highlight the importance of careful planning when considering a balance transfer. It’s not a one-size-fits-all solution, and understanding your financial habits and goals is crucial.

Is a Balance Transfer Right for You?

Deciding whether to use a balance transfer depends on your financial situation, discipline, and debt repayment goals. Here are some factors to consider to determine if it’s the right move for you.

Balance transfers are best suited for individuals who are disciplined and can pay off the transferred balance within the promotional period. If you can commit to making consistent, higher-than-minimum payments, you’ll maximize the interest savings and avoid the high APR that kicks in after the 0% period ends. For example, if you transfer £5,000 to a card with a 0% APR for 15 months and can pay £400 per month, you’ll clear the balance in just over 12 months—well within the promotional window. You can use our Debt Payoff Calculator to calculate your exact payoff timeline based on your monthly payments.

Your credit score is another key factor. Most balance transfer cards require a good to excellent credit score (typically 670 or higher). If your score is lower, you might not qualify for the best offers, or you could be approved with a smaller credit limit, limiting how much debt you can transfer. Check your credit score before applying to ensure you’re eligible for a competitive offer.

Consider the size of your debt and the transfer fee as well. If your debt is small—say, £1,000—and you can pay it off in a few months, the transfer fee might not be worth it compared to the interest you’d pay. On the other hand, for larger balances like £5,000 or more, the fee is often outweighed by the interest savings, especially if your current APR is high.

Finally, combining a balance transfer with a repayment strategy can maximize your success. For instance, using the Avalanche method—focusing on the highest-interest debt first—can ensure you’re tackling the most expensive debt while benefiting from the 0% APR. The Debt Payoff Calculator can help you compare different strategies to see which one saves you the most money and time.

Case Study: James’ Balance Transfer Success

To illustrate how a balance transfer can work in real life, let’s look at James, a 28-year-old graphic designer from London who successfully used this strategy to pay off his credit card debt.

James had accumulated £6,000 in credit card debt across two cards, both with an 18% APR. His minimum payments were £150 per month, but most of that went toward interest, leaving him feeling stuck. Frustrated with his slow progress, James decided to take control of his finances. He started by using the Debt Payoff Calculator on debtfreecalculator.com to assess his situation. The calculator showed that with minimum payments, it would take him 48 months to pay off his debt, and he’d pay £2,800 in interest—a daunting prospect.

Determined to find a better way, James researched balance transfer cards and found one offering a 0% APR for 15 months with a 3% transfer fee. He applied and was approved, thanks to his good credit score of 720. The 3% fee on his £6,000 balance came to £180, bringing his new balance to £6,180. James transferred the full amount, consolidating his two cards into one manageable payment.

Next, James used the Debt Payoff Calculator again to plan his payments. He determined that by increasing his monthly payment to £400—within his budget—he could pay off the £6,180 in 15 months, just before the promotional period ended. This meant he’d pay no interest, with his total cost being just the £180 transfer fee. Compared to his original plan, this approach saved him £2,600 in interest and cut his payoff time by 33 months.

To avoid accumulating new debt, James took a practical step: he cut up his old credit cards and switched to using a debit card for daily purchases. He also set up automatic payments to ensure he never missed a due date. Over the next 15 months, James stuck to his plan, watching his balance shrink each month. When he made his final payment, he felt a huge sense of relief and accomplishment. Not only was he debt-free, but he had also built better financial habits that would serve him well in the future.

James’ story shows how a balance transfer, combined with a clear plan and the right tools, can make a significant difference. Want to see if a balance transfer can work for you? Try our Debt Payoff Calculator to crunch the numbers and create your personalized plan.

Conclusion

A balance transfer can be a game-changer for paying off high-interest debt, but it’s not a magic bullet. The pros—significant interest savings, faster debt payoff, and the ability to consolidate payments—make it an attractive option for many. However, the cons, including transfer fees, the risk of high interest after the promotional period, potential credit score impacts, and the danger of accumulating new debt, mean it’s not the right choice for everyone. Careful planning and discipline are key to making a balance transfer work in your favor.

James’ success story highlights the power of combining a balance transfer with a solid repayment strategy. By transferring his £6,000 balance to a 0% APR card and using the Debt Payoff Calculator to plan his payments, he saved thousands in interest and became debt-free in just 15 months. His journey shows that with the right approach, a balance transfer can be a stepping stone to financial freedom.

If you’re considering a balance transfer, take the time to evaluate your situation. Check your credit score, calculate your payoff timeline, and ensure you can commit to paying off the balance before the promotional period ends. Our Debt Payoff Calculator can help you compare scenarios—with and without a balance transfer—to see how much you can save in time and interest. Whether you choose a balance transfer or another strategy, the most important step is to take action today. Use our Debt Payoff Calculator to create a plan that works for you and start your journey to a debt-free future. If you have any questions? Visit our FAQ page.