A balance transfer allows you to move debt from one account to another. This is usually done to take advantage of a 0% Annual Percentage Rate (APR) on a new or existing credit account. Moving money from a high interest account to a low or no interest account can save a great deal of money.
Steps to Transfer a Balance
- Apply for a credit card with a 0% interest rate on balance transfers or check your existing credit lines for promotional offers on balance transfers. The best offers are given to those who have a good to excellent credit score. Your FICO score should be above 650 to have the best opportunity for 0%interest rate.
- Start the balance transfer online, by cash advance checks, or by phone. Be sure to have information about the previous debt account you are looking to move.
- Once the balance has transferred, resume paying down the balance as you normally would. If you use an existing credit line, your minimum payment will go up because of the increased balance on that account. The best way to save money is to pay down the balance while you are in the lowered rate period.
Who Should Consider a Balance Transfer?
A balance transfer should be considered if you have high revolving debt or need to consolidate monthly payments. Making one payment rather than multiple payments can declutter your debt portfolio and help you take control of your expenses.
One of the most beneficial aspects of transferring debt from one account to another is the amount of money you can save. Credit card APRs are usually above 15%. A high APR increases the amount of money you owe—causing debt to become unmanageable. The best balance transfer card will come with a 0% APR for a given period to help you lower your interest. A lower promotional interest rate can be obtained on an existing or a new credit card.
Balance Transfers Reminders
- There may be a balance transfer fee ranging from 3%to 5% of the amount transferred
- If receive a 0% APR, it is likely for a short period. You should plan how you will take advantage of the low interest rate. Pay down as much of the principal balance as possible within the given introductory period
- If you initiate a balance transfer with a new credit card, make a plan and stick to it to avoid additional debt
- You will need good credit to get approved. Your credit score determines your interest rate and likelihood for approval.
Sources:
1. Tsosie, Claire. 2022, NerdWallet, What is a Balance Transfer, and Should I Do One, <https://www.nerdwallet.com/article/credit-cards/balance-transfer>
2. Lockert, Melanie. 2022, Credit Karma, The pros and cons of balance transfers, <https://www.creditkarma.com/credit-cards/i/balance-transfer-pros-cons>
