Transferring the balance of your high-interest credit card to a low-interest credit card is often a great way to save on interest and reduce financial stress. Plus, if you transfer multiple balances, you’ll be able to budget more easily with a single monthly payment.
But how do credit card balance transfers work? Read on to find out how you can get the most out of your credit card balance transfer.
What is a Credit Card Balance Transfer?
A credit card balance transfer means you bring the balance of your old credit card to a new credit card, usually with a different lender. You can do this for one credit card balance or multiple.
The main reason people choose to do a credit card balance transfer is to access a card with a lower annual percentage rate (APR) than they currently have.
To make the transfer worthwhile, your new lender may waive the balance transfer fee and offer you zero or low interest for an introductory period. You may save a significant sum on interest if you can pay off your credit card balance in this period.
How to Find a Credit Card Transfer That Will Save You Money
Follow these simple steps to make sure you save money on your credit card balance transfer:
- Look up the APR on your current credit card(s).
- Shop around your local credit union and other financial institutions to find a credit card with a low introductory APR on balance transfers and no balance transfer fee.
- Make sure the credit limit is high enough to accommodate your old debt and still have available credit – a good credit utilization ratio is key to a good credit score.
- Check whether the intro APR is dependent on your credit score. If so, get pre-approved to find out what APR you’ll get for your score.
- Check what your APR on purchases will be during the intro period. If it’s higher than what you’re paying on your existing card, you could still accept the low balance transfer rate and choose not to make any new purchases until your old balance is paid off.
- Check what the APR for your credit card will be after the intro period is finished – and compare that to the APR you’re paying on your current credit card.
- If your new rates will be lower than what you’re paying now, a credit card balance transfer could work in your favor!
Bonus Tips on Credit Card Balance Transfers
- Multiple applications for the same service in a short period will ding your credit score only once – and it will bounce back when you start making timely payments.
- Credit unions can often provide lower rates because they distribute revenue back to their members in the form of low-cost credit.
How to Do a Credit Card Balance Transfer
Once you’ve figured out if a credit card balance transfer makes sense for you, it’s time to take the next steps:
- Choose your new lender and apply for a credit card with a low introductory rate on balance transfers.
- Once you’ve opened your new credit card account, be sure to request the balance transfer from your previous lender.
- Give your new lender the details of your old credit card(s) and authorize them to make the transfer on your behalf, or your former lender might write you a check for that purpose.
- Keep making payments on your old credit card until the transferred funds show up in your account, so you’re not hit with late payment fees and extra interest.
- Start making payments on your new, low-interest credit card!
Smart Money and Credit Management Tips
A credit card balance transfer is a chance to bring your old credit card debt under control. Here are a few pointers to make sure you stay on top and avoid running up excessive debt:
- Always pay at least the minimum balance due on time every month. If you fail to do this, you may lose your intro APR so check with your lender.
- Pay more than the minimum any month you have extra room in your budget.
- Focus on paying down your old balance during the low-interest introductory period.
- You might be able to avoid paying interest on new purchases if you pay them off within your credit card’s grace period (the time between the end of the billing period and the due date).
- Try not to use your credit card for any significant purchases until the old balance is paid off in full.
Ready for a Credit Card Balance Transfer?
The final question to ask is: How can you be sure you’ll get approved for the credit card that will bring you the most benefits?
As mentioned, your credit score impacts what interest you pay. So it could be a good idea to work on improving your credit before you apply for your new card. Click below to find out more tips and tricks!