You may have heard of a balance transfer, but what exactly is it? A balance transfer is when you move an unpaid balance from one open credit account to another. Typically, this is done to save on interest for that balance by transferring it to a credit account with a lower interest rate.

A zero percent balance transfer is when you move that unpaid balance to a credit account that features a zero percent interest rate for a finite period of time. This introductory rate will typically only last for a few months, and then the balance will accrue interest at the higher standard rate. Many credit cards that promote other rewards, like the Discover it Cash Back card, also offer zero percent balance transfers.

Before you take action, consider these guidelines to help inform your usage of a zero percent balance transfer:

  1. Why Apply For a Zero Percent Balance Transfer?
  2. Remember It’s Only Temporary
  3. Three Ways to Weigh a Transfer
  4. Smart Budgeting Pays Off

1. Why Apply For A Zero Percent Balance Transfer?

A zero percent balance transfer can be an effective way of consolidating or reducing debt. These 0 percent balance transfers can help you to save on interest payments you are making on your existing credit card.

For example, consider you owe $3,000 on a card with an APR of 15 percent . If you continue to pay interest while reducing the balance by $215 each month, you will still have accrued $525 of interest over the 14 months it took you to pay off the balance, assuming you make no additional purchases.

But, let’s say that you accepted a 0 percent balance transfer offer of 14 months with a 3% balance transfer fee. You would pay off your old balance of $3,000 and would incur a new balance of $3,000 plus $90 in balance transfer fees on your new 0 percent balance transfer credit card. Because of the 0 percent balance transfer offer, you could pay off your new balance in 14 months and save over $400 in interest assuming that you make no additional purchases and make monthly payments of $221.

2. Remember It’s Only Temporary

The introductory zero percent balance transfer rate is temporary. The duration of the introductory 0 percent balance transfer offer varies based on individual offers. After this introductory period, the remaining transferred balance is subject to the standard balance transfer rate for the card. You should pay attention to the duration of the introductory offer because, once it is over, there will be an increase in your interest rate.

It is always important to familiarize yourself with the terms and conditions for any credit card. For example, in some cases, new purchases on cards with an active 0 percent balance transfer offer will incur interest at the standard purchase APR, unless the 0 percent offer applies to new purchases as well. The amount transferred through such 0 percent balance transfer offers is often subject to a one-time balance transfer fee. This fee, typically 3 percent to 5 percent, is added to the new balance.

3. Three Ways to Weigh a Transfer

Consider these three ways you can use a balance transfer.

  • Consolidate Multiple Credit Card Debts. It can be difficult to manage debt across several credit card accounts. With each account, you’ll have a separate monthly statement, and a separate due date. You may also have multiple online accounts or mobile apps to track. When you have multiple payments to make each month, it’s simply more to keep track of, which can mean an increased likelihood of accidentally missing a payment. By transferring your balances to a single new account, you can save time and energy by making just one monthly payment.
  • Reduce Your Monthly Payments. Another great way to use a balance transfer is when you’re looking to save money. When you transfer your credit card balances to a new account with a 0 percent introductory APR rate for balance transfers, you will not have to pay interest on the transferred balance during that promotional financing period. Keep in mind that many balance transfers include a fee equal to a certain percentage of the balance transferred, like 3 percent, but this fee is often worth it if you can cut down on a large amount of interest paid. It can be helpful to determine your potential savings by using an online balance transfer calculator.
  • Set a Goal for Paying off Your Credit Card Balances. One of the most effective ways to utilize a credit card with a 0 percent introductory APR rate for balance transfers is to use its limited timeframe as a deadline for paying off your balances. During the promotional financing period there will be no interest charges on the balance transfer, so all of your monthly payments will go toward paying down your principal as long as you don’t make new purchases on the account.

One strategy is to divide your entire balance by the number of months of promotional financing that your card offers. You can then pay off a set amount each month so that you have no remaining balance by the end of the introductory financing period. If the zero interest rate balance transfer lasts for 12 months, then divide the transfer amount by 12.

4. Smart Budgeting Pays Off

It is important to remember that, no matter how much you are struggling with your debt, you should continue to make all of your payments on time because only applicants with excellent credit will qualify for introductory credit card offers like zero percent balance transfer.

For those looking into taking advantage of a 0 percent balance transfer, consider making a comprehensive plan for eliminating credit card debt that focuses on maximizing income, minimizing expenses, and paying off the entire balance before the introductory rate expires.

Published February 17, 2015.

Updated May 1, 2020.

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