Your Comprehensive Checklist for a Successful Balance Transfer
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Balance transfers can be an extremely helpful tool for those laden with credit card debt. A 0% APR offer on balance transfers can give users some breathing room from having interest piled onto their debt month after month. (See also: Fastest Way to Pay Off $10k Credit Card Debt)
The 0% APR promotional period can last between six and 21 months. During that period, interest won't accrue on the balance, allowing each month's payment to go entirely to the principal. If you can pay down your debt entirely during this period, you can save a lot of money and cut down the time it would take you to pay it down otherwise. (See also: When to Do a Balance Transfer to Pay Off Credit Card Debt)
But, balance transfers can be complex. There are details you need to be aware of to make sure you actually save money and pay down your debt. With that in mind, we've created a checklist of everything you should do when considering and executing a balance transfer. We've listed the short version first, and will go over every point in detail below.
The checklist
- Check your credit score to see which balance transfer cards you might qualify for.
- If your credit is bad, take steps to improve it first.
- Compare offers to find the best card for your needs.
- Apply for a balance transfer card with a bank that's different from the one you want to transfer from.
- Avoid jumping on too many cards at once.
- Consider how much debt you want to transfer.
- Calculate whether you'll save money if you have to pay a balance transfer fee.
- Have a Plan B if you're not approved for the card you want — or if the credit line is too small.
- Come up with a plan to pay down your balance within the intro period.
- Transfer your balances right away.
- Keep paying on your old card until you're sure the balance transfer has gone through.
- Avoid using your balance transfer card for purchases.
- Make payments on your balance transfer card on time.
- Pay as much as you can each month to get out of debt faster.
- Ignore rewards until you are debt-free.
- Resist the temptation to rack up debt on your old card.
- Consider whether you should close your old credit card.
- Avoid being a serial balance transferrer.
Explanations
1. Check your credit score to see which balance transfer cards you might qualify for
Before you apply for a new balance transfer credit card, it makes sense to check your credit score to see whether you will qualify for the best offers on the market. Nearly all 0% offers require excellent or good credit. That means a FICO score of 670+. If you're on the lower end of this range you may get approved, but for a higher APR once the promotional period expires.
You can get a free estimate of your credit score online through services such as Credit Sesame or Credit Karma. Many credit cards also offer free credit scores these days. They won't be the exact same scores that the credit card companies use to approve applications, but they'll give you a good idea of where you stand.
2. If your credit is bad, take steps to improve it first
Let's say you check your credit score and find out that it's not looking too hot. According to myFICO, any score below 580 is considered poor.
If you fall into the poor credit category, it's very unlikely you'll qualify for a 0% balance transfer offer. In this case, you may be better off waiting and taking steps to improve your score instead.
Steps that can improve your credit score quickly include paying all your bills on time, refraining from making more charges, and paying down debt.
3. Compare offers to find the best card for your needs
Once your credit is in good enough shape, it's time to compare offers. While it's tempting to jump on the first balance transfer offer that comes in the mail, take time to consider your options before you pull the trigger. Peruse each bank's credit card website and look for these factors:
- Introductory offer period: Promotions can range from six months to 21 months at 0% APR. If you have a lot of debt to pay off and need as much time as possible, that's a huge difference.
- Go-to rate: This is the APR you will pay on any new purchases from the start, and on your transferred balance once the promotional period ends.
- Balance transfer fee: Although there are a few cards with no balance transfer fees, the vast majority of balance transfer credit cards charge a fee equal to 3–5% of your balance.
Beyond those factors, check for other perks. For example, some balance transfer cards have no foreign transaction fees, and others offer rewards and consumer benefits like guaranteed returns and extended warranties. These benefits may be valuable once you've paid off your balance and want to keep a good card for future, responsible use. (See also: Which Balance Transfer Credit Card Is Best for You?)
4. Apply for a balance transfer card with a bank that's different from the one you want to transfer from
Before you apply for a balance transfer card, make sure it's offered by a different bank than the one you're transferring from. Most card issuers won't let you transfer balances among their own cards, and you might not know this until after you've been approved for the balance transfer card. To avoid an issue, only apply for balance transfer cards from a different bank.
5. Avoid jumping on too many cards at once
You might be impatient to get started with your balance transfer, or figure you can apply for several in case you get denied by a few. But since applying for a credit card will result in a hard inquiry, this will lower your score temporarily, which may have a negative effect on one or more of your applications. And even if you do get approved for several, this will affect your credit as well.
Your FICO score is based on several factors, one of which is the amount of new credit you have. New credit makes up 10% of your score, so getting too many new cards in a hurry can cause your score to drop. And since another 15% of your FICO score is determined based on the length of your credit history, new cards can shorten your history and cause your score to dip in that way, too. (See also: 5 Things With the Biggest Impact on Your Credit Score)
6. Consider how much debt you want to transfer
One benefit of balance transfer cards is that you can consolidate multiple debts. If you've maxed out several credit cards and are having trouble keeping all the payment dates straight, you may be accidentally paying late and accruing late fees. Transferring all those balances to one card would give you just one card and monthly bill to keep track of.
You may be able to move other debts to your new card, too. You could use checks that come with the credit card to transfer loans from cars, furniture, and other monthly installment payments. This will, of course, all depend on the credit limit you are given. (See also: 5 Tricks to Consolidating Debt and Saving Money)
When considering transferring multiple debts to a new card, keep in mind that you may not want to transfer more debt than you can pay off during the intro 0% period. It depends on the go-to rate of your balance transfer card. If the go-to rate is 22% and the rest of your debts have more moderate rates of 10–15%, for instance, it may make sense to transfer less than the full balance from even just one card.
To determine the right transfer amount, figure out what monthly payments you can comfortably afford and multiply that number by the number of months in the promotional period of whichever card you're considering. Only transfer that amount. If you do the math, the higher APR after the promotional period will eat up all the savings you received during the 0% interest period. It's better to keep whatever balance you can't pay off on a lower APR card or loan.
7. Calculate whether you'll save money if you have to pay a balance transfer fee
While balance transfer credit cards offer a rare opportunity to pay off debt without interest, the privilege of transferring a balance usually comes at a cost. Typically, you will have to pay a balance transfer fee of 3–5%.
That means you'll pay $300 to $500 for every $10,000 in debt you transfer. While that may seem like a lot, it's easy to see why the math can work.
An example: If you're carrying $10,000 in credit card debt at 18% APR and you pay $500 per month, you'll pay a total of $1,978 in interest before finally eliminating your balance in 24 months.
Let's say instead you transfer that balance to a card with a 5% balance transfer fee and a promotional zero-interest period of 21 months. You'd pay $500 for the fee, but if you put the same $500 per month toward your balance, you'd pay off the entire balance in 21 months, with no further interest. You'd have saved $1,478, and paid off your debt three months earlier.
Other offers you might find might include cards with a $0 balance transfer fee, but at a shorter intro period. For example, you might see a card offering $0 balance transfer fee but with only a 12 month 0% intro period. In that case, if you transferred $10,000 and paid $500 per month, at the end of 12 months, you'd have a $4,000 balance. If the go-to rate is 18%, it would take you another nine months to pay it off. The interest you paid would be $294. This is cheaper than the $500 balance transfer fee in the previous example.
The longer promotional period might have seemed much more attractive, but when you do the math, you find the other offer is better, in this example.
Note: In the above example, the go-to rate of the new balance transfer card is the same as the APR of the card you have existing debt on. Usually, balance transfer cards have very high APRs. That's why you never transfer more than you can pay off in the promotional period. You always try to keep your debt on the card with the lowest APR. (See also: 6 Hidden Dangers of Balance Transfer Credit Cards)
8. Have a Plan B if you're not approved for the card you want — or if the credit line is too small
By this point, you may have narrowed down the cards you're considering and have chosen one top pick that you want to apply for. But don't get rid of those other options just yet.
Keep in mind that you may not get approved for the card you want. And even if you do, your new credit line may not be big enough to transfer the amount you want. You'll need a backup plan for how to manage the remaining balance, which may involve applying for another balance transfer card.
It pays to have a list of other cards and offers for this eventuality, and also in case you don't get approved for your top choice. Some card issuers may be more willing to approve you when others say no.
Keep in mind, too, that your current cards can offer balance transfers as well. They probably won't offer you a 0% period, but they might be willing to lower their APRs, and maybe even waive a balance transfer fee. This can be a good alternative if you just can't get a card with a 0% offer.
9. Come up with a plan to pay down your balance within the intro period
Even before you've been approved for a balance transfer card, it's important to have your endgame in mind. As we mentioned above, it's best to pay off your full balance within the card's promotional 0% interest period. Once the promotion expires, your credit card's interest rate will revert to whatever APR is listed in your card's terms and conditions. If it is higher than the APR on your current card, you definitely want to ensure that the entire balance is paid off before the go-to APR goes into effect. Mark your calendar, set up an alert — don't miss the deadline. (See also: This Trick Could Help You Pay Off Your Debt)
10. Transfer your balances right away
While offers on balance transfer cards can vary, almost all set a time limit on when you need to transfer a balance to qualify for the introductory offer. With many cards, that's 30 or 60 days after approval.
If you forget to transfer your balances within the prescribed timeline, you won't get the promotional 0% APR and you will have wasted an opportunity. Not only that, you'd have lost those days of 0% APR. The clock for the promotional period starts ticking usually as soon as you're approved, not when you actually transfer a balance. In order to take full advantage of it, you need to transfer your balance right away.
If you get approved immediately via an online application, you might want to go ahead and give them call to see if you can transfer a balance immediately. If you've been approved, there's no reason why you have to wait for your actual card to be in the mail, usually another 10 days, to make the transfer.
11. Keep paying on your old card until the balance transfer has gone through
Often, people will fill out the paperwork for their new balance transfer credit card, then figure the deal is done. Since they assume it's all squared away, they don't make the next payment on their old credit card.
But it typically takes about a week for a balance transfer to go through — sometimes longer. If you miss a payment on your old credit card before your balance is transferred, you can face a late payment fee. Not only that, but your credit score may take a hit.
Before you stop making payments on your old credit cards, make sure all your balances have been successfully transferred to your new balance transfer card. Once you're sure, you can stop making payments on your old cards.
12. Avoid using your balance transfer card for purchases
While your primary purpose for a balance transfer card should be to pay off existing debt, you can take your balance transfer card to the store and charge purchases like you would with any other card.
Just because you can doesn't mean you should. Although some balance transfer cards offer 0% APR on purchases as well as balance transfers, many don't. If you happen to get a card that doesn't extend the promotional rate to purchases and you use it to buy something, you'll be charged the card's regular interest rate on those purchases. Not only that, but because of the way payments are allocated, it will take you longer to pay off the balance than if you'd put it on a different card.
The law requires credit card issuers to apply your payment to the highest-rate balance first — but there's an exception. The minimum payment amount can be applied to whichever balance (the zero-interest transferred balance, or the higher-interest new purchase balance) the card company chooses. In almost all cases, that means the minimum payment will go toward the no-interest balance, and whatever you pay above the minimum will go to the higher-interest balance. If it's not enough to clear the purchase balance, you'll now accrue more interest charges on it next month.
Let's say you've got a $10,000 balance that you've transferred at 0%. You then buy a $300 pair of headphones, which is subject to the card's regular 18% APR. Your minimum payment is $250, and you pay $300, thinking you're paying off those headphones. But you're not really, because $250 — the minimum payment amount — will be applied to the no-interest balance, leaving only $50 to be applied toward the higher-interest headphones. Now you've still got $250 to pay on the headphones, and they're going to be assessed an interest charge that will compound every month until whenever you're able to clear that balance.
If that hasn't convinced you to lock the balance transfer card away, also know that you won't get a grace period on that headphone purchase, either. A grace period is the time during which you are allowed to pay your bill without having to pay interest. By law, if an issuer has a grace period, it has to be at least 21 days.
But you only get a grace period if you're not carrying a balance. In this case, you are carrying your transferred balance, so you don't get a grace period, and you'll rack up interest charges from the moment you make that purchase.
You can see why you would be better off keeping the balance transfer card in a drawer and using another form of payment for any new purchases.
13. Make payments on your balance transfer card on time
While it's never a good idea to miss a credit card payment, it can be especially bad with a balance transfer card. Bank rules vary, but sometimes paying even one day late will cost you your introductory offer. If you lose your introductory rate, you'll be stuck with a higher interest rate on the rest of your balance. Set up payment reminders or, even better, automated payments to ensure you pay your bill on time.
14. Pay as much as you can each month to get out of debt faster
During your balance transfer intro period, interest is not accruing on your debt and it won't show up in your monthly statements. That means your minimum required payment will be lower than it was on a high-interest card.
But, if you truly want to get out of debt, you shouldn't make just the minimum payment. Your best bet is paying all you can toward your balance during your card's 0% introductory period. Since every dollar you fork over will go directly toward paying off the principal, you can use this opportunity to get out of debt faster than you would if you were still paying interest.
15. Ignore rewards until you are debt-free
Many balance transfer cards try to tempt consumers with a rewards program. The problem is, rewards have a way of getting people to spend when they should really be paying off debt.
Obviously, falling into this trap can be a big mistake. As we explained earlier, new purchases on a balance transfer card may take longer to pay off than on a regular credit card.
The best thing you can do when transferring a balance is focus on paying off debt and worry about rewards later. No amount of rewards will be worth it if you spiral further into debt.
16. Resist the temptation to rack up debt on your old card
Once you've zeroed out your balance to your old credit card, it can feel like a huge relief. You've got months to pay off the old balance on the new card, and that can give you some much needed breathing room.
But don't get so complacent that you then are tempted to put a bunch of new purchases on your old card. Before you know it, you could have another large balance on your hands. Then you're in a worse situation than when you started.
The idea of balance transfer cards is to delete your debts. If you decide to put purchases on your old card, only charge as much as you can pay off every month. Otherwise, you may be better off paying with cash or a debit card until you're debt-free.
17. Consider whether you should close your old credit card
Along those same lines, you may decide it's best to just close your old account. This especially makes sense if that card charges an annual fee.
However, realize that every time you close a card, you lower the amount of available credit you have, which raises your credit utilization ratio — the amount of debt you have compared to the total of all your credit lines. This will ding your credit score.
One alternative to closing the card is to put it away in a safe place and keep it barely active by putting a small recurring charge on it such as a video subscription service. (See also: 5 Times It's Okay to Close a Credit Card)
18. Avoid being a serial balance transferrer
If you fail to pay off your transferred balance before the intro 0% period expires, it may make sense to then get another balance transfer card to help tackle the rest of your balance. But it's not a good idea to make it a habit. Not only could this become costly if you pay a balance transfer fee every time, but it also means you'll stay in debt a lot longer. To get the most out of a balance transfer card, you need to buckle down and stay focused on the real goal — getting out of debt, once and for all.
What's more, hopping from one balance transfer card to another while maintaining high debt levels makes lenders see you as a risk. That will make it harder for you to borrow money or get approved for other credit card or loan offers.
Take a look over this checklist before you sign up for a balance transfer card. Zero-interest offers can be a great way to tackle your debt, but only if you consider all the costs, choose the right card for you, and then adhere to a plan to pay off your debt once and for all. (See also: 5-Day Debt Reduction Plan)
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Tagged: Personal Finance, Credit Cards, balance transfer, checklist, credit card tips, how to, personal finance tips
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