Step-by-Step Guide to Doing a Balance Transfer on Credit Cards

By Jason Steele. Last updated 12 January 2018. 0 comments

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When you're stuck with credit card debt, it can be incredibly hard to look at your monthly statements. Each time you look at one, you see your outstanding balance, your interest charges, and your new purchases. When you put these three things together, it may seem unlikely that you'll ever pay off your debts.

But it doesn't have to be this way. Many credit card issuers offer cards with interest-free balance transfers. These offers allow you to transfer your existing balance to a new account and take a break from interest charges for a limited time. By law, these offers must extend for at least six months, but there are currently interest-free promotional financing offers on balance transfers that last as long as 21 months. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

This gives you some time to pay down your debt without incurring interest charges. Use the end of the promotional financing offer as the deadline to pay off your balance. (See also: When to Do a Balance Transfer to Pay Off Credit Card Debt)

Here is the step-by-step process to using a balance transfer to pay down your debt.

1. Check your credit

A balance transfer will be limited by the credit line you are offered. If you have bad credit (a high credit utilization ratio with a history of late payments), even if you are approved for the card you want, you may not be able to transfer that much because you'll be given a low credit line. To improve your chances of getting approved with a sufficient credit line, you'll need to improve your score first. Spend a few months making payments on time, try to pay as much as possible (not just the minimum due) to lower the total amount of debt you have, and try to pick up some side gigs so you can boost your income (it's part of your application and will be considered when determining your credit line). (See also: 7 Ways to Increase Your Credit Score Quickly)

2. Find the right offer

Nearly every major credit card issuer has cards with 0% APR balance transfers, so how do you choose the right one? First, you'll want an offer that lasts as long as possible. There are many that extend to 15 months or more.

Next, look at the balance transfer fees. They're usually 3–5%, but a few rare cards come with no fees for balance transfers. Also, you'll want to look at all of the other terms and fees, including the standard interest rate that will apply after the promotional rate expires.

Finally, be aware that card issuers make these offers as a way to acquire your business from their competitors, and you won't be able to transfer a balance between two different accounts from the same issuer. (See also: Which Balance Transfer Credit Card Is Best for You?)

3. Do the math

To get the most value out of a balance transfer, you'll want to take into account these three things:

  • Balance you want to transfer.

  • Balance transfer fee.

  • Amount you can pay each month within the promotional period.

For example, let's say you have $7,500 in credit card debt. Your current card has a 15% APR. If the new card you're applying for has a lower APR, you should transfer all (or as much as you can) over, since a lower APR will definitely save you money, even if you don't pay off your full balance within the promotional period.

However, most credit cards offering a balance transfer rate will have high APRs once the promotional period is over. So you should only transfer what you can afford to pay off during that time. Run your budget and decide how much you can afford to pay each month toward credit card payments.

Continuing with the example, you've calculated that you can afford to pay $500 per month toward your credit card payment. You are deciding between two offers (both these cards have an 18% APR):

Card A has a 0% balance transfer offer for nine months, with zero balance transfer fee.

Card B has a 0% balance transfer offer for 15 months, with a 3% balance transfer fee.

At first glance, you might automatically assume the one with the longer promotional period is better. But the 3% balance transfer fee is actually significant, and if you can pay down your balance enough, even the six extra months with interest could turn out to be less than the balance transfer fee. That's why you need to do your math.

With Card A, you transfer $7,500 with no balance transfer fee. After nine months of $500 payments, you'll have a balance of $3,000. The 18% APR kicks in and you'll pay off the balance in seven months, with $168 of interest paid.

With Card B, you transfer $7,500 with a 3% balance transfer fee, which comes out to $225, which is added to your balance. It'll take you 16 months to pay it off.

In this example, Card A wins. It only costs $168 in interest vs. the $225 in fees. This will not always be the case. It depends on your balance, the APR, and the promotional period. Promotional periods can be as short as six months and as long as 21 months.

4. Apply for the card

Once you've found the best offer for your needs, you can simply fill out an application online. When you do, be sure to include all sources of household income, not just employment. For example, you can include alimony, child support, Social Security, and investment income. You can also include the income of your spouse or domestic partner, so long as you have a reasonable expectation of access to the money. (See also: This Simple Mistake on a Credit Application May Cost You)

5. Complete the balance transfer

Once approved for the credit card, your account will be opened immediately, even before you receive and activate your card. Therefore, you can contact the card issuer and request to perform the balance transfer. If you have outstanding balances on multiple credit cards, and you don't have a high enough limit to transfer all of them, then you'll want to transfer the balances from the ones with the highest interest rates first. (See also: What You Must Know Before Transferring Credit Card Balances)

6. Automate your payment

Committing to the monthly amount you determined before making the transfer is the only way to prevent a balance transfer from ballooning your credit card debt. Getting through all the previous steps may seem like you've done a lot toward debt repayment, but if you don't follow through with the plan, you've just moved your debt to a different card, most likely with a higher APR. Also, the fine print in almost all balance transfer offers will say that the 0% promotional rate can be voided if a payment is late. Instead of having nine to 15 months of zero interest, you've just canceled all that by turning in a late payment. You might also be tempted to write in a lower amount when you make the payment, telling yourself that you'd still be saving money and it won't affect your debt that much. Avoid all of this, by simply setting auto payments. It's too easy to get derailed.

7. Avoid making new charges to your account

As the old saying goes, the first step toward getting yourself out of a hole is to stop digging. If you charge new purchases to your account, you'll be making it harder to repay your debt. And while many interest free balance transfer offers also come with 0% APR financing for new purchases, some don't. Instead, stick to your repayment plan and refrain from any new purchases, on any of your cards, until you've tackled your existing balances. (See also: 6 Hidden Dangers of Credit Card Balance Transfers)

8. Decide what to do with your old credit card

Once you've transferred the balance from your old credit card, you'll need to decide what to do with the old card. You may wish to keep it open without making new charges to it. This has a credit score benefit, because that credit line helps keep your credit utilization ratio low — the amount you owe on credit cards compared to how much credit you have available. Another factor for your credit score is credit history. If you've had that card for a long time with a history of on-time payments, closing that card may affect your score. But reasons to close it include removing the temptation and if it has an annual fee with benefits you don't use. (See also: How to Close a Credit Card Without Dinging Your Credit Score)

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Step-by-Step Guide to Doing a Balance Transfer on Credit Cards

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