A balance transfer allows you to move your credit card balance to a different credit card with a lower interest rate. Having a lower interest rate allows you to pay down your debt faster and save on interest payments.
How much can a balance transfer save? Transferring a balance from a high annual percentage rate (APR) to a low or 0% introductory rate could save you hundreds of dollars in interest.
#1 Research
The first step is to research available cards and find one with a lower rate (ideally 0% for a year or more) that accepts balance transfers (not all do). Other important considerations are:
- How long is the promotional period? Cards designed for balance transfers usually offer a promotional period with low or 0% interest. At the end the period, the rate will go up, so its best to have the balance paid by the end of the promotional period. If you’re unable to pay off the balance within the promotional period it may be better to leave the balance with the old card and pay it over the same amount of time.
- Is there a balance transfer fee? Not all issuers charge balance transfer fees, but most charge between 3-5% of the balance you want to transfer.
- Is there an annual fee? A no annual fee card is best for balance transfers; a high annual fee could negate your interest savings.
#2 Apply
Next you should apply for the new credit card with the lowest balance that matches your credit profile and meets your needs.
#3 Transfer
Once you are approved for the new card, initiate the transfer by signing into your online account or calling the phone number provided on the back of the card. Provide the balance and the account number of the credit card that you want to transfer from. The new card may approve a transfer of the full or partial balance, depending on your credit limit and the issuer’s own rules.
Keep in mind that you normally won’t be able to transfer balances between cards from the same issuer. Also, you should keep making payments on your old account until you receive notice that the balance transfer has been completed.
#4 Pay Off
After the transfer has been completed you should plan to pay down the balance before the promotional period ends and the interest rate goes up. The benefit of a lower-interest transfer is that you can use the amount of interest you save to pay off your balance sooner. Its not a good idea, however, to move debt from one card to another without paying down the debt.
#5 Keep Your Old Card
Its generally good for your credit score to have multiple open lines of credit so don’t get rid of your old credit card unless it has an annual fee.
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