Is it worth it to transfer a credit card balance?

Credit card companies are again making eye-popping balance transfer offers in order to lure in new customers. Many are offering 15-month, 18-month, or even 21-month balance transfers at a 0% interest rate.

But how do you know if transferring a balance is a good idea or not? Is it worth it to open a new credit card just to save a few bucks of interest on your current card balances?

In most cases, the answer will be yes, because you will save more than a few dollars. If you have a large balance at a high interest rate (say 16% or more) and can transfer to get a 0% interest rate for as long as 18 months or 15 months, you could save plenty of money, even with the 3% transfer fee that most cards charge. (For most credit cards, you will pay a fee of 3% of the amount you transfer to the new credit card.)

Let’s look at some examples:

If you have a $5000 credit card balance at 18% interest and you make the minimum payments for the next 18 months, you will pay roughly $1400 in interest over that period. If you transfer that $5000 to a new credit card at a 0% rate, you will have to pay a $150 upfront fee (3% of $5000) for the transfer, but then you pay no more interest on that money for 18 months, meaning you could save over $1200 in the next 18 months. Sounds good, yes?

Does that example seem too extreme? OK. Let’s say you only have $3000 in card balances and you’re paying 14% interest. And let’s say you are considering a new card that will give you a 0% rate on transferred balances for only the next 12 months. Assuming minimum payments each month, you would pay $420 over the next year in interest with your current card. If you transfer the balance at 0%, you will pay a $90 fee upfront (3% of $3000), which means you still could save over $300 by switching.

Actually, the only time a balance transfer wouldn’t be mathematically worth it would be if the new card had a higher interest rate than your current card after the initial balance transfer offer was over, and if the length of the discounted rate offer was very short. In that case, you would still save in the short run but could pay more in the long run.

So, if a balance transfer almost always makes sense, why would it ever be a bad idea?

Well, there is one thing to consider: If your credit history is not so good, you don’t want to be continually opening new credit accounts. If you use balance transfer offers repeatedly as a way to shift your debt without actually paying it off, you are going to have multiple new lines of credit, and eventually your credit behavior is going to result in a reduced credit score. A lower credit score could cost you in the future when you want new lines of credit — it could result in higher interest rates or being turned down for credit or a loan altogether. So, while credit card balance transfers will definitely be worth it in most cases, don’t use them so much that they become a bad habit.