Because interest rates are going up and are expected to continue climbing, this is a good time to consider getting a balance transfer credit card if you carry a balance on one or more cards.
A balance transfer credit card can help you pay off debt sooner by consolidating it onto one card with a lower interest rate. That way, more of your monthly payment can go toward the principal, enabling you to pay down the debt more quickly. The best balance transfer cards offer low-interest rates, even 0%.
6 Steps to Transfer a Credit Card Balance
1. Check What's in Your Wallet
What are your balance and the interest rate on your current cards? Figure out what cards are in your wallet, how much you owe and the interest rate you pay on your current cards. You can find this information on your paper or online monthly statement in what's referred to as the "Schumer Box." More than one balance can be transferred onto a new card. Consolidating one or two balances can simplify the process.
2. Find the Right Balance Transfer Card That Works for You
Balance transfers offered by credit card issuers are temporary and can range anywhere from a short period of time such as six months to a longer period such as 18 months. During that period, the interest rates can range from 0% to 4% or higher, depending on the credit card company.
3. Understand the Fine Print
Read the fine print and understand all the terms and conditions. Make sure you understand all the terms and conditions of transferring a balance, including how long the introductory rate will last, how the rate will increase if you are late, and the fees charged to transfer the balance. Note on your calendar when the introductory interest rate ends so you can avoid carrying a balance beyond that date when the interest rates will be much higher.
4. Apply for a Balance Transfer Card
After reviewing a few options for the best deal, apply for the card. You can find offers for balance transfer cards here. You typically need good credit scores and a record of paying your bills on time each month to qualify for the best balance transfer offers. Look for cards that do not have an annual fee, and make sure you understand how much you will pay in a balance transfer fee.
5. Transfer Your Balances
Contact the new credit card company to do the balance transfer. The process is pretty straightforward, but if you have a lot of accounts to transfer, be sure to gather all your information before you begin the application process.
Balance transfers can be conducted online or over the phone, but you should plan to continue making one more payment on the original card because the process of applying for a new card and receiving approval can take several days.
6. Plan How to Pay off Your Balance
Pay off your debt within the introductory period. If you do take advantage of a balance transfer introductory rate, remember that rate is temporary—anywhere between three and 18 months. The smart way to pay down your debt and improve your credit scores is to budget so the total of your monthly payments over that time period will pay the entire balance that you transfer. If this is literally not possible for you, get as close as you can so you will not end up in the same position as when you started—with a high balance and high-interest rate.
How to Manage Your Balance Transfer Card During the Promotional Period
1. Pay on Time
Many balance transfer credit cards will end the lower APR if you miss a payment or pay late. Some of them will cancel the lower interest rate after just one late payment. Check out the credit card agreement which spells out the terms of your new credit card and what rules you have to maintain to keep your promotional interest rate.
2. Avoid Using the Card for Regular Purchases
Adding more debt to either the old card or the new one you're transferring the balance to means it will only take longer to pay off your debt. Each card offers different terms and some will only apply the low APR for the transferred amount. New purchases could be charged at a higher interest rate, and monthly payments will often be applied only to the new charges. As a result, you could end up not paying off the entire amount by the time your promotional period ends and your interest rate goes up.
3. Don't Close Your Credit Card After Paying off the Balance
It is tempting to simply close the paid-off credit card so you won't be tempted to charge more purchases on it. When you close a credit card account, it can lower your credit scores since it impacts the length of your credit history and credit utilization ratio. This ratio compares the total amount of credit you have available with the total amount you're using and is a large factor in calculating credit scores.
Balance transfers also impact your credit score because any time you apply for credit, the inquiry is noted. Too many of these inquiries within a short time period can also lower your credit scores.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on November 6, 2018, and has been updated.