Is your credit card debt piling up? Worried that high interest rates are causing that debt to grow faster than you can pay it down? A credit card balance transfer might be a solution.
In a balance transfer, you take the debt from one or more credit cards and transfer it to a different card. The goal is to move your debt from credit cards with high interest rates to one with a far lower rate. Ideally, you’ll transfer that debt to a card that offers 0% interest for a limited period.
How to do a balance transfer in 5 steps
- Check your current balance and APR
- Pick a balance transfer card and apply for it
- Understand your balance transfer card’s terms and conditions
- Transfer your balance to the new card
- Pay off your balance before the 0% APR period ends
1. Check your current balance and APR
Before starting a balance transfer, it’s important to understand the extent of your debt. Gather the most recent statements of all your credit cards to determine the total balance of your credit card debt. Then look at the APR of your cards.
APR, which stands for annual percentage rate, is the price you pay to borrow money on your credit card. For credit cards, APR and interest rate are basically the same.
APR of 18% or higher. It might make financial sense to transfer that debt to a credit card that offers either a lower APR or an introductory period in which it won’t charge you any interest on your existing debt.
See related: Balance transfer calculator
2. Pick a balance transfer card that works for you
Choosing the right balance transfer credit card depends on several variables.
First is the new interest rate.Ideally, you’d want to transfer your high-interest-rate debt to a card that offers 0% interest on balance transfers for a limited time.
- The introductory offers with some credit cards last longer. If you have a lot of debt, you might pick a balance transfer card with a 0% offer that lasts 18 months instead of the more common 12 months.
- If you are transferring a lot of existing credit card debt, you want a balance transfer card with a high credit limit. This way, you can transfer more or all of your existing debt to it.
- Next, you should look out for balance transfer fees. These are typically 3% to 5% of the transferred amount. However, there are several credit cards with no balance transfer fee.
- You should then look at the features that come with a balance transfer card. Some will offer rewards points or cash-back bonuses that could be valuable if you plan on making new purchases on the card. The debt you transfer to a new card, however, usually doesn’t earn rewards or cash-back bonuses.
Usually, consumers apply for a new credit card with an introductory interest rate of 0% on all new purchases and balance transfers. When applying, they also sign up for a balance transfer, providing information to the new card provider about their existing credit card debt. This means listing the credit cards from which they want to transfer their debt and the amount of debt they want to transfer.
hard inquiry, and each hard inquiry can cause your credit score to temporarily fall by five to 10 points, according to FICO. Citi® Double Cash Card and a Citi® Diamond Preferred® Card even though both cards offer balance transfer promotions.
Balance transfer processes and policies may differ among the major issuers. See below to find out how each credit card company handles balance transfers.
5. Pay off your balance before the 0% APR period ends
While balance transfers can be useful tools for controlling credit card debt, personal finance experts warn that consumers often misuse them.
The biggest mistake consumers make with balance transfers is not paying off the debt they transferred before the 0% introductory APR offer expires. Then, when their new credit card adjusts to its higher interest rate, their existing debt once again starts to grow quickly.
Others also make the mistake of adding new debt to the credit card they paid off with their balance transfer. Then, when the introductory offer expires, they’re left with a portion of their old debt and new debt, all at high interest rates. These cardholders are now in an even worse financial situation than they were in before they started their balance transfer.
“Now you are paying higher interest on the balance you transferred, and you are faced with new debt,” said Sabree. “You have to change your frame of mind when you do a balance transfer. You can no longer live beyond your means.”
Fortunately, avoiding this mistake isn’t complicated. Zeidman said the best move consumers can make before starting a balance transfer is to create a household budget showing their monthly expenses and income. Once they’ve done this, they can determine exactly how much they can devote each month to paying down their credit card debt.
Zeidman recommends that consumers set up an automated monthly withdrawal from their checking account for this amount to make sure they pay down their transferred debt at a rate that they can afford.
“Budgeting is important. Autopay is important, too. It’s a way to keep you honest with your payments,” Zeidman said. “Set it and forget it, and then watch your credit card debt decrease month by month.”
See related: Multiple balance transfers: A difficult debt payoff strategy
credit utilization ratio and drop your credit score. Just don’t use it.
“People today don’t understand the concept of scissors, of cutting up that other credit card,” Charnet said. “Suddenly, they see that they have all this credit available to them and they start to use it. It’s better to cut it up and forget about it.”
card with a 0% introductory interest rate gives you an opportunity to pay it off without worrying about interest. If done properly, a balance transfer can help you take control of your credit card debt.
How to transfer a balance with the major credit card issuers
- How to transfer a balance to an American Express credit card
- How to transfer a balance to a Bank of America credit card
- How to transfer a balance to a Capital One credit card
- How to transfer a balance to a Chase credit card
- How to transfer a balance to a Citi credit card
- How to transfer a balance to a Discover credit card
- How to transfer a balance to an HSBC credit card
- How to transfer a balance to a U.S. Bank credit card
- How to transfer a balance to a Wells Fargo credit card