How to Do a Balance Transfer

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Are you struggling to pay down high-interest credit card balances? With new interest accruing every month, trying to make a dent in what you owe can feel like shoveling snow in a blizzard. Moving those debts to a new credit card with an introductory 0% interest rate is a strategy that lets you pay down debts faster while also reducing the total interest you'll pay. You can do this by applying for a new balance transfer credit card and using it to absorb some or all of your credit card debt. If your request is approved, the new card issuer will pay off the balance on your old card and move that balance to the new card; in most cases, you'll also pay a balance transfer fee.

Credit cards designed for balance transfers offer an introductory annual percentage rate (APR) as low as 0% for a period of time—typically 12, 15 or 18 months. Transferring a balance to one of these cards could make sense if you can qualify for one (you'll typically need a good or excellent credit score), if you can pay off the balance before the no-interest period ends, and if you can resist the urge to rack up more credit card debt.

Some balance transfer cards also let you transfer loan balances. Think carefully before moving a loan balance to a balance transfer card, however. In most cases, the regular APR on the credit card will be much higher than the APR on a loan. If you can't pay off the balance by the end of the promotional period, you could end up paying more interest than you would have with the original loan. Consider this strategy only if the interest rate on your loan is higher than the regular APR on the balance transfer card and if you have a firm plan for paying off the balance transfer before the promotional period ends.

Step-by-Step Guide to Initiating a Balance Transfer

Does transferring a balance sound like a good idea? Here's what you'll need to do to start a balance transfer.

1. Know How Much You Want to Transfer

The total amount you'll be able to transfer will depend on the credit limit of your new balance transfer card, which you won't find out until you're approved. The card issuer may also set a limit on how much you can transfer, which may be lower than your credit limit. If you have a lot of high-interest debt, you may not be able to transfer all of it to the new card. Write down the amount, interest rate, type of debt and lender or credit card issuer for each balance you're hoping to transfer. If you can't transfer all of it, this list will help you prioritize the highest-interest debt.

2. Choose the Right Balance Transfer Card

You usually can't transfer a balance from one card to another card from the same issuer or any of its affiliates. For example, if you want to transfer a balance on your Chase credit card, you'll need to look for a balance transfer card from a different issuer. If you want to transfer a loan balance, be aware not all balance transfer cards allow this; check with the credit card issuer before you apply.

You can boost your odds of success by applying for a balance transfer credit card that you're likely to qualify for. Check your credit report and score before you apply or consider using Experian CreditMatch™, which can pair you with cards based on your credit profile.

Once you've identified some balance transfer cards you might qualify for, compare them based on:

  • Length of the introductory 0% APR period: The longer this period lasts, the more time you'll have to pay down your balance. Also note anything that could cause you to lose the 0% intro APR, such as making a late payment, and what your APR would climb to in this situation.
  • Regular APR: What ongoing APR will the card have after the promotional period ends? The lower, the better if you plan to use the card after your balance transfer is paid off.
  • Fees: Balance transfer fees are typically 3% or 5% of the amount transferred. If you're planning to transfer a high balance, this can add up. Also consider any other fees associated with the card, such as annual fees, late fees or foreign transaction fees.
  • New purchase terms: In general, you shouldn't use a balance transfer card to make new purchases, but you should still understand how they'll be treated if you do. Does the card charge a higher than 0% APR on purchases? If so, will the interest start to accrue immediately? Some balance transfer cards don't have a grace period for paying off new purchases, which means interest could be charged on new purchases as soon as you make them. Some cards even stipulate that if you make a new purchase, you must pay your balance in full—including the transferred balance—each month or start accruing interest.
  • Perks and rewards: Once your balance transfer is paid off, you may want to start using the new card for purchases. All else being equal, a card that offers rewards such as cash back or travel miles could be your best choice. Just make sure the rewards don't tempt you to use the card before your balance transfer is paid off or to run up a big balance again afterwards.

3. Initiate the Transfer

Depending on the credit card issuer, you may be able to request a balance transfer when you apply for the credit card, or you might need to wait until you're approved. Either way, you'll be asked how much you want to transfer and the account numbers of the cards from which you want to transfer it. Act fast: In most cases, you'll need to make a balance transfer within the first few months of card ownership, if not sooner.

Once the new credit card issuer approves the balance transfer, they'll either contact your creditors and pay off your balances directly or send you a check to do so yourself. The amount you've transferred plus any balance transfer fee will become the balance of your new credit card.

Transferring a balance may take as long as 14 to 21 days, depending on the card issuers involved. To avoid any missed payments or late fees on your old credit card, keep making the minimum payment on it until you're sure the balance transfer has gone through.

What to Do After You Make a Balance Transfer

Once your balance transfer is complete, follow these steps to help pay off your debt and improve your credit score.

  • Keep your old card open. It's best not to close your old credit card, even if there's a zero balance and you don't plan to use it in the future. Closing an existing card will reduce the amount of credit available to you, which could cause your credit utilization to climb and result in credit score damage. Instead, put the card away somewhere safe so you won't be tempted to use it.
  • Make a payment plan. Commit to paying off the transferred balance before the introductory period ends. The easiest approach to this is dividing your balance by the number of months in your introductory period and pay that amount each month. Treat this payment as non-negotiable, like a car loan, and before you know it, that balance will be gone.
  • Make all your payments on time. To prevent credit score damage and other penalties, do not miss a payment on your new credit card. It may help to set up monthly automatic payments so you never have to think about it and never miss a payment—especially if a late payment will cost you that 0% APR.
  • Refrain from using your new credit card. It can be tempting to start buying stuff with that shiny new card, especially if you can earn perks like cash back or a sign-up bonus for doing so. But piling more debt onto a card that you're trying to pay off will require bigger monthly payments in order to get out of debt.

Once your balance transfer is paid off, you can keep credit card debt from creeping up again by reviewing your budget for ways to spend less and save more. If you have other debts after your balance transfer is paid off, take the amount you were putting toward your balance transfer card each month and use it to pay them down.

How Do Balance Transfers Impact Your Credit?

A balance transfer can affect your credit in a few ways, both positively and negatively. When you apply for a balance transfer card, the lender will make a hard inquiry into your credit report. This can cause your credit score to dip temporarily, but it should bounce back within several months as long as you aren't applying for any other credit cards or loans.

Keeping old credit card accounts open and unused after you've transferred their balances could decrease your credit utilization ratio, which can help boost your credit score. Your credit utilization ratio measures how much of your available credit you're actually using; adding a new card lowers the ratio by increasing the amount of credit available to you. A credit utilization ratio of less than 30% can positively affect your credit score. On the other hand, if the balance transfer pushes your new card's utilization over 30%, your credit score could drop. As you pay off your balance and reduce your utilization again, this factor's effect on your credit scores should be blunted.

Keeping an eye on your credit score is the best way to see how a balance transfer impacts your credit. Consider signing up for free credit monitoring so you can get alerts whenever your credit score changes. And remember, a temporary credit score drop may be worth it in the long run if the new card allows you to get a handle on your debt.

Make the Most of a Balance Transfer Card

Making your new credit card's payments on time and chipping away at your balance will reduce your debt and can help improve your credit score. Once your transferred balance is paid off, keep up good financial habits like maintaining a low balance and paying your bills on time, and watch your credit score reap the rewards.

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