When a balance transfer beats chasing credit card rewards

Balance transfers do not move rewards

A balance transfer moves debt. A points transfer moves rewards. Citi’s purchase-rewards terms, for example, exclude transferred balances from earning ThankYou Points.

The reason to move debt is to reduce borrowing costs. Start with the interest you would otherwise pay, subtract the transfer fee and other costs, and check whether you can meet the payoff schedule.

The $5,000 example

Taylor owes $5,000 at 24% APR and can commit to a 15-month repayment plan. For this example, the alternative is 0% on the transferred balance for all 15 months, a 3% fee added to the balance and no annual fee.

The model assumes no new purchases or missed payments. It uses 2% monthly interest on the existing card and equal end-of-month payments; actual daily-balance calculations can produce different statement amounts.

Compare the payoff costs

At 24% APR, the 15-month payment is about $389.13. Using the unrounded payment, total repayment is $5,836.91, including $836.91 in interest.

The transfer adds a $150 fee, making the balance $5,150. At 0%, about $343.33 a month clears it in 15 months. The final payment adjusts for rounding. The borrowing-cost saving is $836.91 − $150 = $686.91.

Set a payment that meets the deadline

Do not use the card’s minimum payment as the payoff target. Divide the full transferred balance, including fees, by the number of payments available before the promotion ends.

With only 14 payment dates, Taylor needs about $367.86 a month. Check when the promotional clock starts and whether the transfer must be completed by a separate deadline.

When the transfer fee is too high

If Taylor can clear the original balance in one month, the simplified interest cost is $100. A $150 transfer fee would cost $50 more.

A lower APR is useful only when the interest avoided exceeds the fee and any other added cost. Compare both routes over the same payoff period.

Keep purchase rewards separate

A 2% rewards card earns $40 on $2,000 of eligible monthly purchases, or $600 over 15 months. That comes from purchases, not from moving the $5,000 debt. Taylor’s modeled $686.91 interest saving is a separate calculation.

New purchases can also become expensive while carrying a promotional balance. The CFPB explains that losing a purchase grace period can cause those purchases to accrue interest. Check the purchase APR and grace-period terms before using the transfer card for everyday spending.

Read the offer before applying

Before relying on the savings, check:

Keep paying the original account until the transfer is confirmed. For Taylor, completing the 15-month plan saves about $687; paying off the debt in one month makes the transfer unnecessary.

• The fee, annual fee, promotional period and APR afterward.
• The approved transfer amount and whether the fee uses available credit.
• Eligible debts and issuer restrictions. Citi describes transfers from non-Citi accounts.
• A monthly payment you can sustain until the balance is cleared.