Understanding Credit Card Balance Transfers

The 0% introductory interest rate on balance transfers is a common feature of many credit cards targeted to consumers with good to excellent credit. While this offer looks great on the surface, people who take advantage of it might find themselves on the hook for unexpected interest charges.

The problem is that transferring a balance means carrying a monthly balance, and carrying a monthly balance - even one with a 0% interest rate - can mean losing the credit card’s grace period and paying surprise interest charges on new purchases. The grace period is the time between when your credit card billing cycle ends and when your credit card bill is due, during which you don’t have to pay interest on your purchases. By law, it must be at least 21 days. You only get the grace period if you aren’t carrying a balance on your credit card. What many consumers don’t realize is that carrying a balance from doing a promotional balance transfer - not just from making purchases - can mean losing the grace period on any new purchases made with the card.

With no grace period, if you make any purchases on your new credit card after completing your balance transfer, you'll incur interest charges on those purchases from the moment you make them. When that happens, some of the money you’re saving by having a 0% interest rate on the balance transfer will go right back out of your pocket.

The only way to get the grace period back on your card and stop paying interest is to pay off the entire balance transfer as well as all your new purchases. If you had enough cash saved up to do that, you probably wouldn’t have done the balance transfer in the first place.

This article explains in detail the balance transfer math, and the deceptive marketing practices identified by the Consumer Financial Protection Bureau (CFPB).