How to Transfer a Credit Card Balance
Understand the complete process of transferring a credit card balance. Learn to reduce interest and manage debt for financial improvement.
A balance transfer credit card helps manage existing credit card debt. It moves balances from existing credit cards to a new card, often to secure a lower temporary interest rate. This consolidates multiple debts into a single payment, simplifying financial obligations. The main benefit is an introductory promotional period with significantly reduced or eliminated interest charges. This allows more payments to go toward the principal debt, rather than interest.
Eligibility and Offer Selection
Before a balance transfer, understand eligibility and select an offer. Credit card issuers look for applicants with good to excellent credit scores, a FICO Score of 670 or higher, to qualify for the most favorable balance transfer offers. Some issuers may extend offers to those with fair credit (FICO Scores between 580 and 669), though the terms may not be as advantageous. Lenders also consider income stability and existing debt levels.
Balance transfer offers have components for review. A key feature is the introductory Annual Percentage Rate (APR), which is 0% or a very low interest rate, applied to the transferred balance for a specific duration. This introductory period can range from six to 18 months, with some offers extending up to 21 months or longer. The standard APR, the interest rate after the introductory period, should also be noted, as any remaining balance accrues interest at this higher rate.
Most balance transfers incur a balance transfer fee, a percentage of the amount transferred. These fees range from 3% to 5% of the transferred balance, often with a minimum charge ($5 or $10). This fee is added to the transferred balance, becoming part of the debt on the new card. For example, a $5,000 transfer with a 3% fee would result in a new balance of $5,150. Some offers waive this fee but have shorter introductory periods.
Other terms and fees require attention. An annual fee, though less common with balance transfer cards, could impact the overall cost. Late payment penalties incur additional charges and can forfeit the introductory APR, causing the standard APR to apply immediately. It is important to read the terms and conditions of any offer to understand all associated costs.
Comparing different balance transfer offers means weighing the introductory APR, the length of its promotional period, and the balance transfer fee. A longer interest-free period provides more time to pay down debt, but it might come with a higher transfer fee. Calculate if potential interest savings outweigh the transfer fee. The credit limit on the new card determines the maximum transfer amount. Issuers may offer a balance transfer limit that is lower than the overall credit limit on the card.
The Application Process
After identifying a suitable balance transfer offer, apply for the new credit card and initiate the transfer. Applications are mostly online, though in-branch options exist. During the application, provide personal details: name, address, Social Security number, and income. This information helps the card issuer assess creditworthiness and determine a credit limit.
Many applications include a section to indicate balance transfer intent. If available, this streamlines the process by submitting the transfer request with the card application. To process the transfer, specific information from old credit card accounts is required. This includes the name of the creditor, the account number, and the exact balance to be transferred. The billing address for the old creditor might also be necessary.
After submitting the application, outcomes vary; some receive instant approval, others have pending reviews. After approval, the balance transfer process begins. The new issuer contacts old creditors to pay off balances. The transferred balance, with fees, appears on the new account.
The timeline for a balance transfer varies, from a few days to several weeks. Some transfers process in as little as two days, while others can take up to six weeks, depending on the financial institution. Continue making minimum payments on old credit card accounts until you receive confirmation that the transfer is complete. This helps avoid late fees and prevents negative impact on credit scores during the transfer period.
Managing Your Transferred Balance
After the balance transfer is complete, confirm its completion. Check statements from both the new balance transfer card and old credit card(s). The new card’s statement should reflect the transferred balance and fees, while the old card’s balance should be zero or significantly reduced. This ensures funds moved correctly and avoids lingering obligations.
A strategic repayment plan maximizes balance transfer benefits. The primary goal is to pay off the entire transferred balance before the introductory APR expires. This maximizes interest savings, as payments during this period directly reduce principal debt. While minimum payments are required, paying more each month accelerates debt reduction and helps achieve debt-free status before the higher standard APR applies.
It is advisable to avoid new purchases with the balance transfer card. Many balance transfer cards apply the low introductory APR only to the transferred balance; new purchases may accrue interest immediately at the standard APR, even during the promotional period. Using the card for new spending complicates repayment and undermines the balance transfer’s purpose of eliminating existing debt. Focusing on paying down the transferred amount helps maintain clarity in repayment.
Once the introductory period ends, any remaining balance accrues interest at the much higher standard APR. Paying off the balance by this deadline avoids increased interest costs. If a balance remains, adjust budgeting for higher interest payments.
A balance transfer can affect credit scores. Opening a new credit card account results in a hard inquiry, which may cause a temporary slight dip in the score. However, reducing overall debt and lowering credit utilization (the percentage of available credit used) can positively impact scores over time. Consistent, on-time payments on the new card also improve credit health.