When you have credit card debt, the right plan can make paying it off easier. If you’d like to streamline your monthly payments and lower your interest rates, consider taking advantage of a credit card balance transfer offer.
Wondering how to do a balance transfer? It’s not as difficult as you might think, but there are some important things to remember as you compare credit card offers.
Credit Card Balance Transfer Explained
The process to transfer a credit card balance is relatively simple. First, you choose a card that you want to transfer your balance to. This could be a card you already have that’s running a balance transfer promotion, or a new account.
Then, you give the credit card company the details they need to complete the transfer. That includes the current balance and your account number.
The credit-card company determines whether to approve your application, and what your new credit limit will be. If your new credit limit is enough to cover the full balance-transfer amount, the credit-card company pays off the old account. Going forward, you’d make payments on the new card — ideally at a lower interest rate. If you’re approved for less than the balance transfer amount requested, you can try calling the credit-card company to negotiate for a higher limit or simply just keep the remaining balance on the old card and pay it down. (Other options, such as applying for another transfer with a different card for the remaining balance or cancelling the first transfer to find a company that will cover the full balance transfer, could ding your credit.)
A tip: Keep your old account open with a zero balance to maintain your credit history and a good utilization ratio.
How to Transfer Your Credit Card Balance
Let’s get the ball rolling. This quick checklist will help your balance transfer go as smoothly as possible.
1. CHECK YOUR CREDIT REPORT AND SCORE.
When you apply for a credit card balance transfer offer, the credit card company will review your credit report and score. This, along with factors like your income and monthly housing payment, are used for approval decisions.
Knowing what’s in your credit report beforehand can give you an idea of how likely you are to get the green light for a credit card balance transfer. Some cards, for example, may require excellent credit, while others are designed for people with good or fair credit. Get an idea of where you land on that range to help you narrow the field to cards for which you have the best odds of qualifying. This also gives you time to potentially improve your credit score before applying.
2. CHECK THE INTEREST RATE AND FEES.
As you’re considering different cards, look closely at the annual percentage rate (APR) so you know how much interest you stand to pay.
Many cards feature a zero percent interest rate for transfers for a set amount of time. Pay attention to the terms of the transfer offer so you know exactly how long you have to pay down the balance before the regular rate kicks in. You may, for instance, pay no interest on transfers for 12, 15 or even 18 months. After that, though, the regular APR would apply to any remaining balance, so you may want to buckle down when it comes to paying of the balance during the period of 0 percent interest rate!
The other part of the puzzle is the balance transfer fee. This fee is usually a percentage of the amount being transferred. Many cards require a $5 or $10 minimum. This fee gets rolled onto the new card balance. Some cards will waive this fee, but only if you complete a transfer within a certain time frame after opening your account. Be sure to review all of the terms and conditions so you know what to expect during the balance transfer.
3. DO THE MATH TO MAKE SURE IT’S WORTH IT.
Once you’ve checked the APR and fees for different cards, run the numbers to decide which offer is most attractive.
For example, let’s say you have a $5,000 balance you want to transfer. You’ve narrowed it down to two cards. One has a 12-month 0 percent APR promotional term and waives the balance transfer fee. The other gives you 18 months to pay the balance down interest-free but charges a 3 percent transfer fee.
If you choose the first card, you’d have to pay $416 and change each month to pay it off before the regular balance transfer APR takes effect. If you opt for the second card, you’d add a $150 balance transfer fee onto your total, but your payments would drop down to $286 a month.
You’d have to decide which one’s the better fit for your budget. If you can afford to make a higher monthly payment, the card with the 12-month offer and no fee could save you the most money. On the other hand, if you can’t swing a larger payment, the better option may be the second card.
4. UNDERSTAND THE TIMELINE.
How long do balance transfers take? It’s a common question, and the answer is that it depends. With some credit cards, transfers may take just a day or two, but with others it can take as long as two weeks.
If you’re transferring a balance, be aware of the time frame and don’t neglect any payment deadlines while it’s being processed. Missing a payment on the old account could knock points off your credit score.
5. DON’T RUSH TO SHUT DOWN OLD ACCOUNTS.
After transferring a balance, you may be tempted to close the old account, but not so fast! Closing accounts can hurt your credit score in two ways. First, it can affect the average age of your credit history, which counts towards 10 percent of your credit score.
It could also hurt your credit utilization, which counts for 30 percent of your FICO credit score. Other credit scoring models may weigh credit utilization differently. (Credit utilization is the amount of your available credit you’re using.) If closing an account significantly shrinks your total credit line, your score could suffer.
Also, remember to check your old card to make sure the balance is completely zeroed out. You don’t want to trigger a late payment because of you overlooked any lingering dollars and cents.
Credit Cards for Debt Consolidation
If you think a credit card balance transfer is the right move, the first step is comparing credit card offers. Consider the promotional terms different cards offer and be on the lookout for whether you can take advantage of any perks, such as earning rewards on purchases or transfers.