How to Do a Balance Transfer on a Credit Card
A balance transfer on a credit card could be an appealing option if you have a credit card balance you'd like to reduce and want to save on interest fees.
That said, it's crucial to understand how a credit card balance transfer works. Otherwise, you might make missteps that could cost you time or money down the line.
Here, we'll walk you through the ins and outs of transferring a balance on a credit card, best practices, and common mistakes and misconceptions that may pop up.
Credit Card Balance Transfers at a Glance
A credit card balance transfer is when you move your existing balance from a high-interest credit card to one with a low or no-APR introductory period.
While it can save you money, you'll want to make sure the potential savings are greater than the balance transfer fee.
A realistic repayment plan and adhering to a budget can help you pay off your balance before the standard APR kicks in.
What Is a Balance Transfer?
A balance transfer is when you move your existing balance from a high-interest credit card to one with a lower or no interest rate for an introductory period. In other words, the balance won't rack up interest charges.
The new credit card's no-interest period can be anywhere from 12 to 21 months. Once the no-interest period is over, your card will kick over to the standard APR. The 0% APR usually applies to balance transfers, purchases, or possibly both. That being said, it doesn't usually apply to cash advances—those have a standard interest rate.
Balance transfer credit cards also have a fee, usually anywhere from 3% to 5% or a flat fee of $5 or $10 (whichever is greater). of the amount you're moving to a new card. So if you are moving a balance of $2,000 to the new card, the balance transfer fee can be $60 to $100.
Other than that, the card works just like any other credit card. You can use a card for online, in-person, or contactless payments anywhere that card and the network it's part of gets accepted.
How to Do a Balance Transfer: A Step-by-Step Guide
Here's a breakdown of how to do a credit card balance transfer:
Step 1: Find Out Your Balance and Interest Rate
Before you go card shopping for a balance transfer credit card, you'll want to check the APR and balance of your existing card. This will help you do some comparison shopping and figure out which balance transfer credit cards are the best fit for you.
You can find this information on your monthly credit card statement or by logging into the credit card app. Your statement usually includes your purchase APR. It also usually includes your cash advance APR, which is typically higher than your standard APR. You want to focus on your purchase APR.
Step 2: Decide How Much You Want to Transfer
While you might be tempted to transfer the full amount of your card, it's important to take a "pause" and figure out what is a reasonable amount you'd want to transfer. Remember: The key is to move enough money to your new low or zero-balance card so that you can pay off the balance before the zero-interest period ends.
Step 3: Pick a Card
Here's the kicker: You typically need a solid credit score—think in the good or excellent range that starts with 670—to qualify for a card.The two main things you'll want to keep an eye out for are balance fees and the 0% APR period, says DJ Jack, a financial planner at Abundo Wealth.
"You can run the numbers to see if it makes sense to transfer the balance," says Jack.
The lower the balance fee, the better. No-balance fees are hard to come by, and you'll stand a better chance searching for a card with a balance transfer fee that's on the lower end. And when it comes to zero-interest introductory periods, the longer the period, the more time you'll have to pay off your balance.
Step 4: Get Your Head Around the Terms
While you'll want to look carefully over a credit card's rates and terms before you apply, here are the key things to scour for:
No-or-low interest period
Balance transfer fee
Standard APR
Limit on how much you can transfer to your new card
I'll also want to check other fees like the late fees, overlimit fees, returned payment fees, and what the cash advance APR. The standard APR is important to be clued in because that's the interest rate you'll be stuck with if you end up not paying off your balance before the 0% APR ends.
Step 5: Apply for the Card
Once you've found a card that is a good fit for you, it's time to apply. When you apply, you'll need to provide basic personal and financial information. The card issuer will look at financial factors such as credit score, debt-to-income ratio (DTI), and income to decide whether to approve your application.
The credit card company will also do a hard pull of your credit, which can negatively impact your credit. "However, it will potentially ding your score only by 5 to 10 points, but it drops off within six months," says Jack.
Most folks don't realize that a balance transfer can impact your credit score negatively, explains Michelle Petrowski, a CFP® and founder at Being in Abundance Financial Coaching. "This can be done by increasing your credit utilization if you max out the new card, lowering your average account age if it's a new account and generating a hard inquiry on your credit report."
Step 6: Initiate the Transfer
To initiate a credit card balance transfer, you'll need to reach out to your new credit card issuer. This can be done either by phone or by online by logging into your account and going through the steps.
For the transfer to go through, you'll need to provide the following info:
The card number and balance of the card you'd like to transfer the money from.
Double-check and confirm the transfer amount.
Keep tabs on the process to make sure the right amount gets transferred to your new card and everything goes without a hitch.
Depending on the card and terms, the balance transfer fee is either due at the time of the transfer. The fee might be due in increments over time, while you're chipping away at paying off the balance on your new card.
Step 7: Create a Repayment Plan
To drum up a plan to pay off the balance on your new card, do some basic math to figure out monthly payments so you can pay it off before the zero-interest period ends. For example, if you have $3,000 on the balance transfer card, and you have 21 months with 0% APR, you're looking at a monthly payment of around $143.00.
"Before you commit to an aggressive repayment plan, make sure you’re not straining your cash flow," says Jack. "If you’re planning to put $1,000 toward debt, be sure it won’t leave you living paycheck to paycheck—where even a small unexpected expense could push you over the edge."
Credit Card Balance Transfers: Best Practices
In figuring out how to do a balance transfer between credit cards, here are some best tips:
Run the numbers first: "Run the numbers to see if transferring the balance will actually save you money," says Jack.
Then, look at how much you'll be paying in interest on your current card. If the transfer fees will be higher than the amount you'll save on interest fees, then you shouldn't do the transfer."
One rack up a balance on your old card: Tempted as it might be when your prior card has a zero balance, steer clear from putting on new purchases on your old credit card. That only means additional debt you'll have to pay off.
Account for spendier times of year: You'll want to factor in times of year when you might need to pause on aggressively paying off your debt on your balance transfer card, says Jack.
For example, during the summer months, when you go back to school or on holidays, So with a 21-month no-interest period, aim to stick to your repayment plan for, say, 18 of those months.
Frequently Asked Questions
Is a Balance Transfer a Good Idea?
A balance transfer can be a good idea if the balance transfer fee is less than what you'd be paying in interest if you kept your debt on your current card. Otherwise, you'd be better off not doing the balance transfer.
Do Balance Transfers Hurt Your Credit Score?
A balance transfer can hurt your credit because credit card issuers do a hard pull of your credit when you apply. However, opening a new card also means a higher total credit limit, which brings down your credit usage. In turn, that can help your score.
What Happens to an Old Credit Card after a Balance Transfer?
After you move existing debt to a credit card balance transfer card, the card remains open. You can either keep it open, close it, or downgrade it.
