How to Do a Balance Transfer on Credit Cards

A balance transfer involves moving existing debt from one or more credit accounts to a new credit card. The primary goal is to reduce the interest paid on that debt, often through a promotional period where the transferred balance accrues little to no interest. This allows for more direct repayment of the principal and can simplify financial management.

Understanding Key Considerations Before Applying

Before pursuing a balance transfer, understand the financial implications, starting with balance transfer fees. These fees are typically a percentage of the amount transferred, commonly 3% to 5%. For example, a $5,000 transfer with a 3% fee adds $150 to the total owed, making the new balance $5,150. This fee is usually added to the transferred balance and paid over time.

Balance transfer cards frequently offer a promotional 0% or very low introductory Annual Percentage Rate (APR) for a set period, which can range from six to 21 months. Once this introductory period concludes, any remaining balance will be subject to the card’s standard variable APR, which can be significantly higher. Understanding both rates and the duration of the promotional period is essential to maximize savings.

Annual fees are another financial consideration. While many credit cards do not have annual fees, some balance transfer cards might. These fees, which can range from approximately $50 to over $500, are charged by the card issuer. It is important to assess whether the potential interest savings from a balance transfer outweigh any associated annual fees.

Applying for a new credit card can initially affect your credit score. A “hard inquiry” occurs when a lender checks your credit report, which can cause a small, temporary dip in your score. This inquiry typically remains on your report for up to two years, though its impact usually diminishes within a year. Responsibly managing the new balance, such as by reducing your credit utilization ratio, can positively influence your score over time.

Be aware of transfer limits. The amount you can transfer is often limited by the new credit card’s overall credit limit. If the requested transfer amount, including fees, exceeds the assigned limit, the issuer may approve a lesser amount or decline the transfer. Prioritizing balances with the highest interest rates for transfer is a common strategy when the full amount cannot be moved.

Preparing for the Application

Before initiating a balance transfer application, review your credit score. Checking your score provides insight into your creditworthiness and helps determine your eligibility for new credit products.

Gather comprehensive information about your existing debts. This includes identifying the credit card accounts from which you intend to transfer balances, along with their account numbers, current balances, and the names of the creditors.

Eligibility for new credit cards can vary among issuers. Some financial institutions may have restrictions, such as not allowing balance transfers from credit cards issued by the same bank. New accounts are always subject to creditworthiness checks by the issuer.

Collecting personal and financial information beforehand will help ensure a smooth application. This typically includes your full legal name, date of birth, current address, Social Security number, gross annual income, and possibly your employer’s information.

Initiating the Balance Transfer

The process of applying for a balance transfer can begin through online applications, phone, or in-person at a bank branch. These channels offer various levels of convenience.

When completing the application, you will need to input the details of your balance transfer request. This involves providing the account numbers of the credit cards from which you are transferring balances and specifying the exact amounts you wish to move.

After submitting the application, there is typically a period for approval and for the balance transfer to be completed. The timeline can vary significantly by issuer, generally ranging from a few days to several weeks. It is important to continue making at least minimum payments on your old accounts during this transition period until the transfer is fully confirmed, to avoid late fees or interest charges.

Upon completion, confirm that the transfer has been successful. You can typically do this by checking the statements of both your new and old credit card accounts to ensure the balance has been correctly applied and removed.

Managing the Transferred Balance

After a balance transfer is complete, making timely payments is important to maximize its benefits. Missing even a single payment can result in the loss of the promotional APR, causing the interest rate to revert to the standard, often higher, variable APR. Setting up automatic payments can help ensure minimum payments are made consistently and on schedule.

A primary objective is to pay off the transferred amount before the introductory APR period expires. Developing a repayment plan that divides the total balance by the number of months in the promotional period can help determine the necessary monthly payment.

Avoid incurring new debt on the balance transfer card. New purchases made on the card may not always be subject to the introductory APR and could begin accruing interest at a higher rate immediately.

Deciding what to do with old credit card accounts requires careful consideration. While closing old accounts might seem intuitive, it can have implications for your credit score. Closing an account can reduce your total available credit and shorten your credit history, negatively impacting your credit utilization ratio and average account age. Generally, keeping older accounts open with a $0 balance can be beneficial for your credit score, provided they do not incur annual fees or present a temptation to accrue new debt.