If you’re searching for ways to streamline your credit card payments, a credit card balance transfer may be a good option for you.
With a balance transfer, you can consolidate balances from multiple credit cards onto one card. This can help reduce the number of payments you have to make.
Like any financial tool, balance transfers work best when used strategically. This article explores how to take full advantage of balance transfers and how to avoid common pitfalls.
Learn how balance transfers work
When deciding if a balance transfer is right for you, make sure you know these terms:
- Maximum transfer amount. The maximum amount you can move from other credit cards onto your credit card through a balance transfer. Ideally, you want to find a card with a transfer limit that’s large enough to consolidate all of your credit card balances.
- Promotional APR. Credit cards may have different balance transfer offers, with a low or 0% APR for a specific period, usually 6 to 36 months.
- Standard APR. Once the promotional period ends, your rate will increase to the standard APR, which could be 21% or more.
- Balance transfer fee. The balance transfer fee is usually a percentage of the amount you transfer. The fee typically ranges from 1% to 5% and is added to your total balance on your new card. In Quebec, there may be no fee at all.
Research credit card options
To find the right credit card for your balance transfer, take time to research your options. Review multiple cards to see if you meet the qualification criteria.
When you narrow your search, see if you can prequalify on the issuer’s website. This process typically requires a soft credit pull, which won’t impact your credit score.
Prequalification doesn’t guarantee approval, but it will give you a better idea of whether the card is a good fit and what terms you’re likely to qualify for.
Prioritize your highest-interest balances
The card you choose for your balance transfer may not have a transfer limit large enough to accommodate all your other balances.
In this case, consider transferring balances with the highest interest rate first.
Have a payoff plan
To make the most of a balance transfer promotional offer, you typically need to make more than the minimum payment each month. Create a payoff plan by taking your total amount of debt and dividing it by the number of months in the promotional period.
For example, say you have completed a $5,000 balance transfer to a card with a 10-month 0% promotional period. That works out to $500 per month for 10 months in order to pay off your entire balance at 0% interest.
Avoid new purchases on your balance transfer credit card
If you have completed a balance transfer, then you may want to avoid making new purchases with that credit card. Not only will it add to your overall balance, but the promotional APR may not apply to new purchases. Instead, the standard rate will apply.
For example, you might have a promotional rate of 0% for transferred balances and a new purchase rate of 21%.
Keep your old credit cards active
While there may be situations when closing a credit card is the best choice — to eliminate a high annual fee or the temptation to overspend, for example — it may negatively affect your credit score.
Closing your card will reduce your available credit, which can affect your credit utilization ratio. Ideally, you should keep your balances below 30% of your available credit. Closing an account reduces the amount of credit you have and raises your utilization ratio. If you close a card that you’ve had for a long time, this can also lower the average age of your accounts. High credit utilization and a low average age of accounts can both hurt your credit score.
If you have a credit card that’s paid off but you no longer use it, some issuers might close it automatically after a period of time. To prevent this, use your card for a small purchase or two every few months and pay it off right away to avoid interest charges.
Streamline your credit card payments with a balance transfer
Responsible use of a balance transfer can help you take control of your payments. To find the right card for you, seek prequalification to see what cards you qualify for and compare the terms across multiple cards.
If you choose a card with a promotional balance transfer offer, pay off as much of your transferred balance as possible during the promotional period. To maximize the benefits of a balance transfer, establish a payoff plan, avoid making new purchases and keep your old card active if you can.
By applying these simple strategies, you may be able to significantly reduce your interest costs and get your debt under control.