How to Correctly Transfer a Credit Balance
Navigate credit balance transfers to reduce interest, consolidate debt, and improve your financial well-being.
A credit balance transfer allows individuals to move existing debt from one or more credit accounts to a new credit card. This maneuver consolidates multiple debts, simplifies monthly payments, and reduces overall interest paid. Its purpose is to shift high-interest debt to an account offering a lower, often promotional, Annual Percentage Rate (APR), allowing consumers to allocate more payments directly to the principal balance and accelerate repayment.
Understanding Balance Transfers
While credit card balances are the most common type of debt transferred, some issuers may permit transfers from other forms of debt, such as personal loans or, in rare instances, auto loans. However, it is generally not possible to transfer balances from mortgages or student loans. A significant restriction is that balance transfers typically cannot be made between cards issued by the same financial institution. This means if your current high-interest debt is with one bank, you will need to seek a balance transfer offer from a different bank.
Key Considerations Before Applying
Credit score requirements are a primary factor, as the most attractive offers, often featuring a 0% introductory APR, are generally extended to applicants with good to excellent credit, typically a FICO Score of 670 or higher. While options may exist for those with fair credit (a FICO Score between 580 and 669), these offers might have less favorable terms.
The introductory APR and its duration are crucial, as promotional periods commonly range from 12 to 21 months, allowing time to reduce the principal balance without accruing interest. After this promotional period, a standard variable APR will apply to any remaining balance, which can be significantly higher. Equally important are the balance transfer fees, which are typically a percentage of the transferred amount, ranging from 3% to 5%, with a minimum fee often applied. This fee is usually added to the transferred balance, increasing the total amount owed.
Compare offers from various lenders to identify the most cost-effective solution, considering both the introductory APR and fees. Using online calculators can help estimate potential savings and the total cost of a transfer. Additionally, gathering all necessary information from existing credit card statements, such as account numbers and current balances, prior to application will streamline the process.
The Application and Transfer Process
Applications are commonly submitted through online portals, but phone applications and mail-in forms are also available options. During the application, specific fields will require details such as the account numbers of the credit cards from which balances are being transferred, along with the precise amounts intended for transfer. This information is critical for the new issuer to facilitate the movement of funds.
Immediately following submission, the new issuer typically conducts a credit check, which may result in a temporary, slight decrease in your credit score. An initial approval or denial decision is usually provided, and if approved, the transfer process commences. The timeframe for a balance transfer to fully process and appear on the new account can vary, generally taking anywhere from a few days to several weeks, with most completed within two weeks. It is important to continue making minimum payments on the old account until the transfer is officially confirmed to avoid late fees or interest charges.
After the balance transfer is complete and the funds are reflected on the new account, it is important to verify that the balance on the old account has been reduced to zero or the intended amount. If a residual balance remains, it must be addressed separately. While the old account does not automatically close, you will need to decide whether to keep it open or close it. Careful consideration of credit utilization and credit history factors is advised before closing any credit line.
Managing Your New Balance
Developing a structured payment plan is advisable to pay off the transferred balance before the introductory rate expires. This approach ensures that all payments during the promotional period directly reduce the principal balance, avoiding future interest accrual.
It is generally recommended to avoid making new purchases on the card that holds the transferred balance during the promotional period. New purchases may not qualify for the introductory APR and could begin accruing interest immediately, diverting payments away from the transferred debt. This practice helps ensure that all payments contribute to eliminating the higher balance.
Deciding whether to keep or close the old credit card account after a balance transfer requires careful thought. Keeping the old account open, especially if it is a long-standing account, can positively influence your credit utilization ratio and the length of your credit history, both factors in credit scoring. Conversely, closing the account could negatively impact your credit score by reducing your total available credit and shortening your credit history. Evaluating the card’s annual fees, rewards programs, and your overall credit portfolio should guide this decision.