How to Do a Credit Card Balance Transfer

A credit card balance transfer involves moving debt from one or more existing credit cards to a different credit card, typically to take advantage of a lower interest rate. This financial tool can help individuals consolidate multiple debts into a single payment and potentially save money on interest charges over time. The primary goal is often to reduce the cost of carrying a balance by leveraging a promotional period with a low or zero annual percentage rate (APR).

Key Considerations Before Applying

Before a balance transfer, assess factors determining eligibility and benefit. Credit card issuers generally look for applicants with good to excellent credit, often defined as a FICO score of 670 or higher, to qualify for the most favorable offers. Lenders also consider an applicant’s income and existing debt levels when evaluating approval and setting a new credit limit. It is generally not possible to transfer a balance between two credit cards issued by the same financial institution.

Understanding the terms of a balance transfer offer is essential, beginning with the promotional APR. This introductory rate, which can be as low as 0%, typically lasts for a specific period, ranging from six to 21 months. This allows interest charges on the transferred balance to be significantly reduced or eliminated, enabling more of each payment to go directly towards the principal. After this introductory period concludes, any remaining balance will be subject to a higher, standard APR, which is a variable rate.

Most balance transfers include a one-time balance transfer fee, which is typically a percentage of the amount transferred. This fee commonly ranges from 3% to 5% of the transferred balance, though some cards may have a minimum fee of $5 to $10. This fee is usually added directly to the total transferred balance on the new card. It is important to calculate this fee into the overall cost to determine if the potential interest savings outweigh the transfer expense.

Applying for a new credit card, even for a balance transfer, results in a hard inquiry on your credit report. This inquiry can cause a temporary, slight dip in your credit score. The new account may also reduce the average age of your credit accounts, which can similarly affect your score. Despite these short-term impacts, a successfully managed balance transfer that leads to reduced overall debt can ultimately improve your credit score by lowering your credit utilization ratio. Before applying, gather details for existing credit cards, including account number, current balance, and issuing bank.

The Balance Transfer Application Steps

After evaluating considerations and gathering information, find suitable balance transfer offers. Credit card offers can be found on various bank websites, through online comparison tools, or sometimes arrive as direct mail solicitations. Comparing offers based on the promotional APR period, the balance transfer fee, and the standard APR after the introductory period is advisable.

To initiate the application, you can typically apply online through the card issuer’s website, or by phone. Some financial institutions may also offer in-person application options. During the application process, you will be prompted to provide personal identifying information, such as your name, address, and Social Security Number, along with income details. The application will then require you to specify the details of the credit card accounts from which you intend to transfer balances. This includes the existing card’s account number, the name of the issuer, and the specific amount you wish to transfer from each.

After submitting the application, you may receive an immediate approval decision, particularly for online applications. Balance transfers typically take two days to six weeks, though many are processed within five to fourteen days. It is important to continue making minimum payments on your old credit card account(s) until you confirm that the balance transfer has been fully completed and the amount is reflected on your new card’s statement. The credit limit on the new card will dictate the maximum amount you can transfer, and often, the total transferred amount cannot exceed 95% of the new card’s credit limit.

Managing Transferred Balances

After a balance transfer, consistent and timely payments are important to maximize benefits. Making at least the minimum payment by the due date is necessary to keep the account in good standing and to retain any promotional APR. If your payment exceeds the minimum amount due, federal law requires that the excess portion of the payment be applied to the balance with the highest interest rate first. This payment allocation strategy is beneficial as it helps reduce the most expensive debt more quickly.

It is recommended to avoid making new purchases on the balance transfer card, especially if the promotional APR applies only to the transferred balance and not to new purchases. Any new purchases made could begin accruing interest immediately at the card’s standard APR, which could negate the savings from the balance transfer. Carefully review the card’s terms to understand how new purchases are treated during the promotional period.

Consider the future of the old credit card account(s) from which balances were transferred. Keeping these accounts open with a zero balance can positively impact your credit utilization ratio by maintaining available credit, which can be favorable for your credit score. However, if you are prone to accumulating new debt, closing the old accounts might be a prudent step to prevent future overspending. Regularly monitoring statements for both the new balance transfer card and any remaining old cards is advisable. This practice helps ensure the transfer was processed correctly and allows you to track your progress in paying down the consolidated debt.