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If you carry high-interest credit card debt, it can be challenging to pay off your balance. One strategy to pay down debt faster is to transfer your balance to another credit card that offers a 0% intro APR for a limited time, typically from 12 to 18 months. This buys you some time to make progress on your transferred balance interest-free.
When you initiate a balance transfer to a new credit card account, you "move" your balance from one or more cards to the new card. The card issuer will either pay off your other balance directly or cut you a check so you can do so. The new account will have the transferred amount, plus the balance transfer fee, as the starting balance. If you were able to transfer the entire balance from an old card, you'll have the option to close that account. Canceling the old card doesn't happen automatically, however, and it could have negative repercussions on your credit.
A Balance Transfer Does Not Cancel Your Old Credit Card
When your balance transfer is complete, your old card isn't automatically closed, and you're not required to cancel it either.
Depending on the new card's credit limit, you may not be able to transfer the entire balance. In that case, the old card will have a remaining balance you must continue to pay off. If the credit limit is high enough to allow a full transfer, you can decide whether to keep the old account open.
If you're afraid of the temptation to run up more debt, it could be worth closing the account. But keeping the account open could help bolster your credit. That's because having more available credit can help reduce your credit utilization ratio, which reflects the percentage of available credit you're using. Credit utilization is one of the most important factors in your credit score, making up 30% of your FICO® Score☉ calculation. Using any more than 30% of your available credit can damage your credit scores, and the lower your utilization, the better.
If you can keep your old account open with a low or zero balance, it will lower your credit utilization ratio and may boost your credit. Closing the account can have the opposite effect because it will reduce your overall credit limit. The average age of accounts also plays a role in your credit score, so closing an old account in good standing could eventually drag down your credit score.
When Does It Make Sense to Transfer a Balance?
Transferring a balance can be hugely beneficial for some consumers, but it isn't for everyone. Here are a few ways it can be a positive:
- Saving money on interest: Say you're currently paying 20% interest on your existing credit card debt. If you transfer that balance to a card with an intro 0% APR of 18 months, even with a balance transfer fee, you'll score massive savings by avoiding interest for an extended time. This can also help you pay down debt much faster.
- Simplified bills: If the credit limit on your new balance transfer card is large enough, you can transfer balances from multiple cards onto it. This allows you to consolidate multiple debts with various minimum payments and due dates into one streamlined monthly bill. This can make it easier to pay bills on time—which helps you avoid late payment fees and keep credit scores healthy.
- More favorable terms: It's possible that you can find a balance transfer card with preferable terms and conditions to your previous card, offering benefits beyond the intro period. For example, maybe it has no annual fee, no late fees, cash back or travel rewards, or other perks you didn't have before.
On the flip side, balance transfers have some potential downsides:
- Balance transfer fees: Depending on your current interest rate, a balance transfer fee can easily be outweighed by your future savings on interest payments. However, these fees are often 3% to 5% of your transferred balance, which is added on top of the balance on your new card. Again, it can be offset by the savings, but it's worth doing the math to make sure.
- A higher APR later: When a balance transfer card's introductory period ends, the APR jumps from 0% to its standard APR. It could be lower than your existing card, continuing to save you money, but it's also possible it will be higher. Check the new card's terms closely so you know what the regular APR will be. If you still want the card, but the regular APR is steep, focus on paying off the balance during the 0% APR period.
- Limits on transfers: When you're approved for a balance transfer credit card, the credit limit you receive indicates the maximum amount you can transfer. If the limit the issuer grants you is lower than the balance you intended to transfer, you won't be able to transfer the entire balance and will have to keep some of it on your old card.
How to Make a Credit Card Balance Transfer
To initiate balance transfer, you'll need to get approved for a balance transfer credit card. You will typically need good to excellent credit to qualify, though criteria varies by issuer.
It's wise to compare options across multiple issuers since terms and fees can differ. As you shop around, compare these features:
- The issuer: Credit card companies generally don't allow you to transfer balances from one of their cards to another. This means you'll likely need to find a credit card with a different issuer than the one with the existing balance.
- The introductory period: When viewing balance transfer offers, pay attention to how long the introductory 0% APR period lasts. While 12 to 18 months is most common, you may find offers anywhere from six months to 20 months.
- Balance transfer fee: This is a fee issuers charge for the luxury of transferring a balance, and it's usually 3% or 5% of the transferred amount (though it may also be a flat fee, whichever is more).
- The credit limit: Try to find out the card's potential credit limit, since this can rule out cards that won't offer high enough limits to transfer your entire balance.
Shopping around can help you score the best deal on fees, terms and interest rates on credit cards. Experian's free CreditMatch™ tool allows you to compare balance transfer card offers that are personalized to your credit score.
Once you apply, you'll find out if you're approved and what your credit limit will be. If the issuer hasn't provided instructions for how to make the transfer, contact them and follow their process. The issuer may either pay off your old balance directly, or issue you a check to do it yourself. The transfer typically needs to be done within 60 days.
What to Do After You Make a Balance Transfer
Once you've committed to transferring your balance, don't close the old account just yet. Keep making the minimum payment on the old account until both your old account and new account show that the transfer is complete. This ensures you don't accidentally miss any payments and hurt your credit score or incur any fees. You can monitor your credit score for free through Experian to see how the process affects your credit and to keep up on the information on your credit report going forward.
After the balance transfer is complete, and assuming you were able to pay off the entire balance on the old card, you'll need to decide what to do with it. If you decide to keep the card open, consider putting a small recurring payment on the account, such as a membership or streaming service, to keep it active—and then put the card away in a drawer to avoid running up a new balance and defeating the purpose of the balance transfer.
No matter which balance transfer card you end up with, make sure you pay off the transferred debt during the introductory period. This will ensure faster progress on debt repayment and help make the effort and fees of a balance transfer worth your while.