The right balance transfer promotion can help you consolidate multiple balances into one, which simplifies your financial to-do list. More importantly, it can save you a considerable amount in interest payments when executed correctly.
On the other hand, a poorly planned balance transfer can waste money and further complicate your finances. Follow these steps to smoothly transfer your high-interest debt onto a low-interest credit card allowing you to save money on interest and finally work your way out of debt.
Step 1: Find the best deal
An individual balance transfer card’s constellation of fees and interest rates will suit some debt scenarios, which makes finding a good promotion something of a numbers game. Accordingly, you should always shop around and compare any balance transfer credit cards you’re considering with other offers out there.
Key factors to consider when comparing offers include:
- Annual fee: A new card’s annual fee can eat into your savings from the promotional APR.
- Promotion length: Most balance transfer promotions last from 12 to 21 months.
- Promotional APR: This generally ranges from 0% to 1% or so.
- Regular (or “go-to”) APR: When the promotion period ends, your transferred balance will be subject to a new, higher variable APR. The APR assigned to your account when you open it will depend on your credit score.
What are balance transfer fees?
A balance transfer fee is a one-time charge that you pay for each transfer you execute. Depending on the card issuer, it will be either 3% or 5% of the amount, with a $5 or $10 minimum. A select few cards may not charge a balance transfer fee at all.
As you compare offers, keep in mind that balance transfer cards with 0% interest rate and long promotion lengths are fairly common. These are quite rare and may only be offered periodically by small financial institutions, like credit unions.
For large balance transfers, it’s generally best to get a card with a 0% interest rate promotion with a long promotion length. For small-balance transfers, you might save more by going with a card that has a shorter promotional period but no transfer fee.
Let's say you have a credit card balance of $4,000 at a current interest rate of 21%. If you pay $334 per month, it would take 14 months and you'd pay $528 in interest.
However, if you take advantage of an offer at a 0% intro APR for 12 months with a 3% fee, you would pay $120. If you pay $334 per month you could pay off the balance before the promotional period ends. Saving you $408 dollars.
You can use a balance transfer calculator like this one to figure out which card promotion will help you save the most.
Step 2: Prepare to apply
After you’ve chosen the best card for you, make a list of your existing balances and order them by their respective interest rates. You may or may not be approved for a new credit limit high enough to pay off all the debts on your list. Prioritizing the balances helps ensure that the highest-interest debts are paid off first.
Along with the amount of each balance and rate, write down each account number, the lender’s name, and mailing address. You’ll need some or all of these details when you do the balance transfer request.
Note that certain balances may not be transferable. Some credit card issuers have very flexible policies and may allow you to pay down mortgages, car loans, student loans, business loans, or personal loans with a balance transfer promotion. Others are more strict and only permit the transfer of a credit card balance. But even the most flexible card issuer is unlikely to allow you to transfer a balance from one of its own cards (or a card from one of its affiliates) to another of its cards at an introductory APR.
Aside from prepping the info about the balances you want to transfer, you should also have information ready that you would need when applying for a new credit card:
- Name, date of birth, and Social Security number
- Street and mailing addresses
- Phone number and email address
- Annual income
- Employment status (employed, self-employed, unemployed, or retired)
- Gross annual income
- Monthly rent/mortgage payment
Step 3: Transfer the balance
You can typically apply for a balance transfer credit card online, over the phone, or in person at a branch. If you come prepared with the information detailed in Step 2, the card application itself should only take a few minutes. However, the transfer may take up to three weeks to process.
How does a balance transfer work?
Some promotions require that you request your balance transfer at the time you apply for the new card. Others may give you a window of time, typically between 60 and 120 days or so, to take advantage of it. The latter option is preferable, as you can wait to see what your new card limit will be and then plan your transfer accordingly.
Your new card will likely pay off your balances directly by mailing a check to the previous lenders. You'll want to make sure that you continue to make your minimum payments on the old account while you wait for the transfer to go through.
If you stop making minimum payments prematurely, you could be charged a late or missed payment fee, and your credit score could take a hit.
What happens to your old account?
After your balance transfer is processed, double-check your old accounts to ensure that their balances have been reduced to $0. Some residual interest charges (trailing interest) may have accrued in the accounts during the time between application and payoff.
For the sake of your credit score, you’ll want to keep paid-off credit cards and lines of credit open. The exception is if the account has an annual fee that you’d rather not pay. While paying off your consolidated balance, keep old credit cards out of sight and reach, not in your wallet.
Step 4: Aggressively pay off your debt
Your transferred balance will have a minimum payment amount that you need to make on time each month. Depending on the card’s terms, a late payment may result in the promotional APR period ending prematurely.
If you were approved for a lower credit limit and were unable to transfer all of your debt using the promotion, you may be left with some debts dangling at your old APRs. In that circumstance, you’ll have to prioritize which of your balances to pay off first — the old or the new.
Some personal finance gurus advocate the debt snowball method, in which you’d make minimum payments and then allocate extra cash toward paying off your smallest balance first, regardless of its APR. An alternative approach is the avalanche method, in which you’d pay off the balance with the highest APR first.
Try to seize your low-interest lifeline by paying far more than the monthly minimum during the promotional period. If you don’t make a big dent while you have the luxury of paying little to no interest on it, you might end up in a worse spot than before once the promotion ends and the regular APR kicks in. Plus, you’re out whatever amount of money you paid for the balance transfer fee.
Taking on a side hustle and making some minor adjustments to your budget can give you that extra bit of cash you need each month to fully utilize your balance transfer and pay off your consolidated debt in full.
FAQs
How long does a balance transfer take?
If you prepare in advance, it should take less than five minutes to fill out a balance transfer credit card application and the details of the balances you’d like transferred. It may take a few weeks to fully complete a transfer once it has been requested.
Does a balance transfer hurt your credit?
A balance transfer usually involves opening a new credit card, which triggers a hard credit inquiry. This will typically shave a few points off your FICO score. However, a properly executed transfer should improve your credit score overall.
Opening a new card increases your combined revolving credit limit and decreases your credit utilization ratio, which counts for 30% of your FICO score.3 Making all your minimum payments on time for the transferred balance will also improve your payment history, which is the most important factor in any credit scoring model.
