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Credit cards can be a great financial tool, but they carry high-interest rates. The average interest rate for credit cards currently sits at around 20.40%. That can become a nagging problem if you regularly carry a balance, and even more so if it’s a large one.
That’s where a balance transfer can come to the rescue. By transferring a balance from one credit card to another, you may be able to lower that rate to zero.
How Does a Balance Transfer Work?
The concept of a balance transfer is simple: you’re moving a credit card balance from one account to another to get the benefit of a lower interest rate.
Credit card issuers periodically offer a 0% introductory APR to entice new customers to move balances from other credit cards over to theirs. If the balance transfer credit limit is high enough, you may be able to transfer balances from several existing cards.
In a typical balance transfer, the 0% introductory APR can last anywhere from six months to 21 months. Once the intro offer term ends, the remaining balance on the card is subject to the credit card issuer’s regular interest rate. That makes a strong case for paying off the transfer balance within the introductory rate term.
If you’re offered or approved for a balance transfer, you’ll choose the existing credit card balances you want to pay off. The credit card company can either issue direct payment to those card issuers or provide you with checks to pay off the balances yourself. Usually, the credit card you use for the balance transfer charges you a 3% to 5% fee on the transferred balance amount.
Below are six steps to follow to complete a balance transfer.
How to Do a Credit Card Balance Transfer in 6 Steps
Transferring a balance from one credit card to another is a multi-step process, but it doesn't have to be a difficult one. Here's how to make the transfer work smoothly:
1. Choose a balance transfer card
You can start with our list of the Best Balance Transfer Credit Cards. You’ll find cards included with 0% introductory APR offers ranging from 12 to 21 months.
In selecting a credit card with a 0% introductory APR, you’ll need to know the following:
- Credit score requirement – These vary from one issuer to another, but you can generally expect to need good or excellent credit. However, based on data available on public forums, we did find someone with a credit score of 611 approved for the Chase Freedom Flex(SM).
- 0% introductory APR term – Once again, this can vary from 6 to 21 months. Choose the term that is the best fit for you.
- Balance transfer fees – Most credit card issuers charge between 3% and 5% of the balances transferred to the card. Check out our list of best credit cards with no balance transfer fees and also learn why a card without a balance transfer fee may be better than one with a longer 0% intro APR term.
- Annual fee – Many cards don’t charge this fee. But if you’re interested in a card that does, you’ll need to factor this into the cost of the transfer.
- Regular APR – This is the rate you’ll be paying after the 0% introductory APR period ends.
Finally, give careful consideration to the ongoing benefits of the card you select. You’ll most likely want to keep the card after the balance transfer expires, so this is important. Benefits can include rewards for purchases in the form of cash back, travel miles, or redeemable points. Other benefits may be auto rental collision damage waiver, travel insurance, or sign-up bonuses, to name a few.
2. Read the fine print
If you own even one credit card, you’re undoubtedly aware that they always have fine print. Be sure to read it and understand it. There may be a “gotcha provision” or two that can change the nature of the transfer arrangement.
For example, the balance transfer limit on a card may be less than the total credit limit you are approved for. Say you are approved for a $10,000 credit line, the issuer may only allow $3,500 to be used for balance transfers.
Also, if a credit card customer has been approved for a partial balance transfer only, the promotional 0% intro APR may or may not apply to new purchases. For instance, if the rates are only for balance transfers then any additional purchases you make are likely to accrue interest at the card’s interest rate, which could be as high as 30%. Make sure to understand what the promotional rate applies to.
3. Request a balance transfer from your new card online or by phone
Once your balance transfer card is approved, the quickest and easiest way to complete transfers is either online or by phone. Be prepared to provide the name of the existing card issuer, your account number, and the amount of the balance you want to be paid off.
Be sure to find out how long it can take for the balance transfer to be complete. Depending on the balance transfer card issuer, that can take anywhere from several days to a few weeks.
4. Continue making payments on your old credit card(s) until the balance transfer is complete
This step can cause problems if you ignore it. If a payment due date hits before the transfer is complete, you’ll need to make the minimum payment on the old card. Otherwise, you can incur a late charge and a potential hit to your credit. This is why it’s important to know exactly how long the balance transfer process will take.
5. Be sure any residual balance on your old card(s) is paid
There can be a remaining balance on your old credit cards, even after a balance transfer. That’s because credit cards accumulate interest up until the day the balance is fully paid. There may also be one or more charges on an old card you forgot about.
Be sure to stay on top of statements from the paid cards. If there is any remaining balance, pay it off immediately. Overlooking this step can cause a late payment or even a collection.
6. Be intentional about paying off the balance transfer card
It’s important to remember that using a balance transfer credit card only moves debt from one card to another. It does not eliminate the debt. If your plan is to consolidate high-interest credit cards onto a single card, paying off the balance is the only way to eliminate your credit card debt for good.
A best-case scenario is to pay off the balance transfer card within the 0% introductory APR period. That allows you to devote 100% of your monthly payments to principal reduction. But if you’re unable to pay it off within that term, the next best strategy is to move any remaining balance to a new balance transfer card.
Who Is a Balance Transfer Best For?
A balance transfer works best if you’re serious about getting out of debt. It’s an excellent strategy because the elimination of interest means your entire monthly payment goes to principal reduction.
Even if you can’t pay off the balance in full before the 0% APR period ends, you can usually apply for another balance transfer card at the end of the zero-interest term. This makes a strong case for keeping your credit score high at all times.
And when do you know it’s the right time to do a balance transfer?
It’s usually a combination of factors. You may have a significant amount of high interest credit card debt and a high likelihood of approval for a balance transfer credit card. You may also receive unsolicited offers for balance transfer cards.
What If My Balance Transfer Request Is Denied?
If you’ve been approved for the balance transfer card and a specific transfer is denied, you’ll want to contact the credit card company immediately. Find out the reason for the transfer denial, then do what’s needed to remedy the situation.
Most issuers require you to complete balance transfers within 60 to 90 days of card approval. If you’re beyond that timeframe, the transfer may be denied.
If your transfer is denied because the amount exceeds the allowable transfer balance, you can try to resubmit the transfer for a lower amount.
If your application for a balance transfer credit card is denied, find out why. You may need to spend some time improving your credit score before applying for a new card.
Do balance transfers hurt your credit?
It depends on how you manage balance transfers. You can raise your credit score a few points if you use a single balance transfer card to pay off two or more existing credit cards, as this will lower the number of accounts with outstanding balances.
But you can lower your score with frequent balance transfers. For example, let’s say you apply for a balance transfer card to pay off one card balance, then apply for another a couple of months later. Getting too many new credit cards, too soon, can hurt your credit score.
Should you close your old credit card after a balance transfer?
In most cases, no. It has to do with credit utilization, which you can read more about that here. Credit utilization, which is an important factor affecting your credit score, is the amount you owe on your credit cards, divided by your total combined credit limits. The goal should be to keep this ratio below 30%. When you close-out paid credit cards, your combined credit limit drops. That can raise your credit utilization ratio and drop your credit score.
When should you not do a balance transfer?
If your reason for the transfer is simply to make your monthly payments more manageable, a balance transfer is putting a Band-Aid on the problem. A balance transfer is an opportunity to reduce or eliminate credit card debt. After making a balance transfer, avoid charging anything more to your credit cards until you pay them off. Otherwise, you'll keep adding to your debt.
What’s the catch with balance transfers?
There are two. The first is the balance transfer fee. At 3% or 5% of the balance transferred, it’s an immediate expense for the privilege of accessing a 0% introductory APR.
The second is the end of the 0% introductory APR term. Once it ends, your remaining balance is subject to the regular APR. That may be the same or even higher than the APR on the credit cards you just paid off.
If used right, balance transfer credit cards can be one of the most useful tools for eliminating high-interest credit card debt. Be sure the card you apply for is one that will best help you accomplish that goal. Also, check out these 12 Credit Card Balance Transfer Tips You Should Know About to ensure your balance transfer is a success.