Have you recently been approved for a new credit card with a 0% interest balance transfer offer? This introductory rate often only lasts for a short, predetermined period. After that, the interest rate on balances will certainly go up.
So, how do you transfer a balance from one credit card to another? Here are six straightforward steps on how to transfer a credit card balance from an old card to a new one with a lower rate.
Key Takeaways
- Choose one or more cards with the highest rates and transfer those balances first if the new credit limit permits.
- Read the small print and note the balance transfer fee.
- The terms will generally require completion of the balance transfer within a certain number of days, usually 60 days from account opening.
1. Do Your Research
Balance transfer credit cards purposefully have a special interest rate just for transferring debt to the card. Before you shop for credit cards, take a look at the balances and interest rates of your current credit cards. And, before you get too deep into researching cards, realize that you can’t take out a balance transfer card with the same credit issuer you currently have debt with.
Your goal is to find a balance transfer rate with a great promotion or lower interest rates than what you currently have.
Listing the interest rates for all of the cards you’re considering can quickly help you narrow down your options. As you research cards, read the terms and conditions, too. Here is some of the essential information you need:
- Promotional period and rate: This tells you how many months a special rate is valid. Promotional rates might run for 6, 12, 15, 18, or even 21 months. Don’t forget to check out what the interest rate jumps to once the promo period is done. If you can’t pay off the balance during the special introductory rate, you’ll pay this higher rate later.
- Balance transfer fee: You pay this upfront fee to transfer the debt to your new card. Most balance transfer cards charge around 3% (or $30 for every $1,000) transferred, but it can run as high as 5%. If you’re not sure if transferring the debt will make financial sense once you’ve paid the fee, do the math with a free online balance transfer calculator.
- Transfer limits: Some cards impose transfer limits, and the amount of debt you transfer can’t exceed the credit limit available for the card. For example, if you have $10,000 in available credit, you won’t be able to transfer a $10,000 balance with a 3% balance transfer fee. You need $10,300 in available credit to complete the transaction.
The balance doesn’t have to be in the consumer’s name to qualify for a transfer, so if someone’s new spouse has a high-interest credit card balance and has excellent credit, a 0% APR balance transfer offer can pay off an old balance and help a couple start over together with lower debts.
2. Apply for a Balance Transfer Card
Once you’ve compared the interest rates, promotional periods, and transfer limits for several credit cards and chosen one, submit a credit card application. The easiest way is to fill out an application on the card issuer’s website. You’ll typically have to provide your contact information, social security number, employment status, housing information, and income details.
When you submit the application, the card issuer will pull your credit score (which can temporarily lower your score) and review your information. You should hear back pretty quickly about your application status. If approved, your card issuer may give you a digital card you can use until your physical card arrives in the mail.
3. Request a Balance Transfer
Decide how much debt you want to transfer to the new credit card. If you have a lot of debt or your new card has transfer limits, review the terms and conditions so you don’t exceed them. Then, log into your new card’s account and request a balance transfer or call customer service to request one.
It’s a good idea to refresh your memory about the card’s details, specifically about balance transfer penalties. Transferring a balance at 0% still requires a minimum monthly payment on the balance to keep the promotional rate. So, you might remind yourself what interest rate kicks in if you lose the 0% rate because of missing a payment.
Warning
If you’re opening a new credit card account to take advantage of a 0% annual percentage rate on transfers, be aware that the terms require completion of the balance transfer within a certain number of days to receive the promotional rate, typically within 60 days after account opening.
4. Follow Creditor Instructions
Each credit card company has its own instructions for completing a balance transfer. Here are some options:
Balance transfer checks. The new card issuer (or issuer of the card the balance is being transferred to) supplies you with checks. Then, you make the check out to the card company you want to pay. Some credit card companies will let you make the check out to yourself, but make sure this doesn’t constitute a cash advance.
Online or phone transfers. You give the account information to the credit card company you’re transferring the balance to, and that company arranges the transfer of funds to pay off the account. For example, if you are paying off a $5,000 balance on a high-interest Bank of America Visa card and transferring that balance to a Citi MasterCard with a 0% APR balance transfer offer, you would provide Citi with the name, payment address, and account number for your Bank of America card, and indicate that you want $5,000 paid to that Visa account.
Direct deposit. You need the bank account and routing number of the account you want to deposit the balance transfer funds. Then, wait for the transfer and use the funds to pay off your credit card debt. This isn’t as common since some companies view this as a cash advance.
5. Wait for the Debt to Transfer
Keep an eye on each old account with a balance that’s being paid off to see when the transfer clears. In the meantime, don’t miss any payment deadlines on those accounts and avoid late fees.
Allow at least two to three days (and up to 10) for the new creditor to pay off the old creditor. Each creditor has its own time frame for completing a balance transfer. Keep an eye on the new account to see when the balance has been transferred, and consider closing the old account to avoid the temptation to use it again and accrue more debt.
However, if you’ve had the old card for a long time, it might be best to leave it open and be diligent about not racking up additional debt. The reason is your credit score, which is impacted by the length of your credit history. Closing the account could shorten your credit history and negatively impact your credit score.
6. Pay Off Your Debt
If you received checks or a deposit, use them to pay down your credit card balance. Ideally, you should pay off all of your high-interest credit card debt, especially if you’ve got a great promotional period where you’re not being charged any interest.
Once you’ve paid off your debt, take steps to keep it paid off. Create a realistic budget and stick to it. If you do continue to use a credit card, try to pay off the full balance every month, so you’re not charged interest and your debt doesn’t snowball.
Important
If you have any questions about the balance transfer process, ask customer service for specific details. You don’t want to be penalized for a policy or detail you weren’t aware of.
What Happens to an Old Credit Card After a Balance Transfer?
You have a couple of choices. If it’s a newer card and the interest rate isn’t great or you’re not getting rewards, you could close it. That way, you’re not tempted to use it unnecessarily. If it’s a card that you’ve had for a long time, you might keep it open, but don’t use it. This way, your credit score won’t take a hit.
Does a Balance Transfer Hurt Your Credit Score?
Your credit score may temporarily drop when you apply for the new balance transfer credit card. However, if you’re able to pay off your debt using the new card, your score could improve greatly.
The Bottom Line
Transferring high-interest debt to a 0% interest credit card can be a good way to save money and make it easier to pay off a balance. Following these steps, along with changing spending habits, can help a consumer end up more financially healthy than before the balance transfer.
Read the original article on Investopedia.