Are you struggling with high-interest credit card debt? If so, transferring your balance to a new card with a lower interest rate could be a smart financial move. A balance transfer can help you pay off your debt faster and save you money on interest charges.
However, before you jump into a balance transfer, it’s important to understand the process and potential pitfalls. I will walk you through the steps of transferring a credit card balance, including how to choose the right card (depends on your credit), what to look for in a balance transfer offer, and how to avoid common mistakes. We will also provide tips on how to pay off your debt efficiently and effectively.
I used balance transfer cards over the course of paying down $50,000 in credit card debt. This method (called the balance transfer game) allowed me to save $6,000 in overall interest charges. This article will show you how it works and how you can succeed with it. We used the debt avalanche to pay down the debt faster.
Whether you’re looking to pay off a large balance or simply want to reduce your monthly interest charges, a balance transfer can be a powerful tool in your financial arsenal. This method isn’t for everyone. You have to be dedicated to paying down the debt. Using balance transfers to temporarily reduce your rate is not the goal.
Why Transfer a Credit Card Balance?
Transferring a credit card balance can be a smart financial move for many reasons. In this section, we will explore some of the main reasons why people choose to transfer their credit card balances.
Lower Interest Rates
One of the most common reasons to transfer a credit card balance is to take advantage of a lower interest rate. Credit card companies often offer promotional rates for balance transfers, which can be significantly lower than the interest rate on your current card. By transferring your balance to a card with a lower interest rate, you can save money on interest charges and pay off your debt faster.
If you use your credit cards regularly, most companies will send you balance transfer promotions for 0% for 12 months or 18 months. The longer you can get the promotion, the better as it gives you a much higher chance at paying off the debt before interest charges again.
Another reason to transfer a credit card balance is to consolidate your debt. If you have multiple credit cards with balances, transferring them to a single card can make it easier to manage your debt and keep track of your payments. Consolidating your debt can also help you save money on interest charges, as you can take advantage of a lower interest rate on your new card.
It’s important to note that this can affect your credit score due to credit utilization. While you will free up your open credit on the other cards, if you cancel them, this can ding your credit. It would be temporary though.
Pay Off Debt Faster
The main reason I used credit card balance transfers is to pay off the debt faster. When you get a promotional rate (the only reason you’d even do this), you are effectively only paying toward principal. That gives you the best change to pay down the most debt over the course of the promotional period. While there is a fee attached to transfer the balance, it’s far less than what the normal interest charges on a card.
For example, most cards charge between 3% and 5% to transfer a balance, but your normal credit card interest rate is over 20% APY. This effectively reduces your rate from 20%+ to the fee you paid. This is a good thing if you are focused on paying off this debt.
How to Transfer a Credit Card Balance
Transferring a credit card balance can be a smart move to save money on interest charges and pay off debt faster. Here are the steps to transfer a credit card balance:
Choose a Balance Transfer Credit Card
The first step is to find a balance transfer credit card that offers a low or 0% introductory APR on balance transfers. Look for a card with a long introductory period, ideally at least 12 months, to give you enough time to pay off your debt without accruing interest.
Compare the balance transfer fees, annual fees, and other terms and conditions of different cards to choose the one that best fits your needs. You can use online comparison tools or check with your current credit card issuer to see if they offer any balance transfer promotions.
Banks are fighting for your credit card debt. They will often give you a balance transfer promotion. You just have to ask.
Check the Balance Transfer Fee
Most balance transfer credit cards charge a balance transfer fee, typically 3-5% of the transferred amount. Make sure to factor in this fee when calculating the cost savings of transferring your balance. While it looks like it will cost you more, it’s saving you a lot in interest charges over the course of the promotional period.
You can ask the credit card company to reduce the fee of the transfer. Many times they say no, but I have had them drop it down to 1.5% before when I was paying down debt. It doesn’t hurt to ask.
Request a Balance Transfer
Once you’ve chosen a balance transfer credit card, you can request to transfer your balance from your current credit card issuer to the new card. You would provide the new issuer the information they need to transfer the balance. This typically includes your account number and issuing bank.
IMPORTANT – Only transfer over an amount you know you can pay off during the promotional period. The idea is to pay off that debt completely and then do it all again (talked about below as the balance transfer game).
It’s important to continue making payments on your old credit card until the balance transfer is complete to avoid late fees or penalties. Once the transfer is complete, you can start making payments on your new credit card.
In summary, transferring a credit card balance can be a useful tool to save money on interest charges and pay off debt faster. Choose a balance transfer credit card with a low or 0% introductory APR, check the balance transfer fee, and request the transfer from your current credit card issuer to your new card.
Tips for a Successful Balance Transfer
When it comes to transferring a credit card balance, there are a few tips that can help ensure a successful transfer. Here are some things to keep in mind:
Pay on Time
One of the most important things you can do when you transfer a credit card balance is to make sure you pay on time. Late payments can result in fees and penalties, and they can also cause your interest rate to go up. To avoid this, set up automatic payments or reminders to make sure you pay on time every month.
Pay More than the Minimum
While it’s important to make your payments on time, it’s also important to pay more than the minimum amount due. By paying more than the minimum, you can reduce your balance faster and save money on interest charges. Pay as much as you can to pay off the balance before the promotional period ends. This is the key to doing a balance transfer.
Avoid New Purchases
When you transfer a credit card balance, it’s important to avoid making new purchases on the card. This is because most balance transfer offers come with a 0% introductory APR for a limited time, and any new purchases you make will likely be subject to a higher interest rate. Instead, focus on paying off your transferred balance as quickly as possible.
Other tips for a successful balance transfer include:
- Check your credit score before applying for a balance transfer card. Better credit scores offer better rates.
- Read the terms and conditions carefully to understand the fees and interest rates
- Don’t close your old credit card account right away, as this can affect your credit score
- Keep track of your progress and make adjustments as needed
By following these tips, you can make the most of your balance transfer and work towards paying off your credit card debt.
How to Play the Balance Transfer Game
This “game” is something I learned how to play when I was trying to get out of debt. It saved me thousands of dollars in interest and helped me get out of debt faster.
What is the Balance Transfer Game?
The balance transfer game is a strategy that involves transferring high-interest credit card balances to a card with a lower interest rate during a promotional period. This promo period typically is between 12 and 18 months. The goal is to save money in the long run and pay off debt faster. Essentially, it’s a way to take advantage of introductory offers and promotions that credit card companies offer to attract new customers.
What’s the Purpose?
The purpose of the balance transfer game is to pay off debt faster and save money on interest charges. By transferring high-interest balances to a card with a lower interest rate, we can reduce the amount of interest we pay each month and accelerate our debt repayment. The game is particularly useful for those who have multiple credit card balances and are struggling to keep up with payments.
Rules of the Game
To play the balance transfer game, there are a few rules we need to follow:
- Find a card with a low introductory interest rate: Look for a card that offers a 0% or low-interest rate for balance transfers. Make sure to read the fine print and understand the terms and conditions of the offer.
- Calculate the transfer fee: Most balance transfer offers come with a transfer fee, which is usually a percentage of the balance being transferred. Make sure to calculate the fee and factor it into the overall cost of the transfer. Most charge between 3% and 5% but compared to your normal interest rates above 20%, this saves significant money.
- Transfer the balance: Once we’ve found a card with a low introductory rate and calculated the transfer fee, you can initiate the transfer with your new card. This usually involves filling out an application and providing information about the existing credit card balances. Don’t transfer more than you can pay off during the promotional period.
- Pay off the balance before the introductory rate expires: The introductory rate is only temporary, so we need to make sure to pay off the balance before the rate expires. Otherwise, we’ll be back to paying high-interest rates on our credit card balances.
- Avoid using the card for new purchases: If we use the card for new purchases, we’ll be charged interest on those purchases at the regular rate. This can offset any savings we’ve gained from the balance transfer.
By following these rules, we can play the balance transfer game effectively and save money on interest charges. However, it’s important to remember that the game is not a magic solution to debt problems. It’s just one strategy that can be used in conjunction with other debt repayment methods.
Potential Risks of Transferring a Credit Card Balance
Transferring a credit card balance can be a useful strategy to save money on interest payments. However, there are potential risks involved that should be considered before making a decision. In this section, we’ll discuss some of the most common risks associated with balance transfers.
High Balance Transfer Fees
One of the biggest risks of transferring a credit card balance is the high balance transfer fee that is often charged by credit card companies. This fee is typically a percentage of the balance being transferred, and can range from 3% to 5% of the total amount. For example, if you’re transferring a balance of $10,000, you could be charged a fee of $300 to $500.
While this fee may seem like a small price to pay for the potential savings on interest payments, it can add up quickly and negate any potential benefits of the transfer. It’s important to carefully consider the balance transfer fee and compare it to the potential savings on interest payments before making a decision.
High Interest Rates
Another risk of transferring a credit card balance is the possibility of a high interest rate after the introductory period ends. Many credit card companies offer a low or 0% introductory interest rate for a limited time, typically 12 to 18 months. However, once the introductory period ends, the interest rate can jump up significantly, sometimes to as high as 20% or more.
If you’re unable to pay off the balance before the introductory period ends, you could end up paying more in interest than you would have if you had left the balance on your original credit card. It’s important to carefully consider the interest rate after the introductory period ends and make sure you’re able to pay off the balance before that time.
Credit Score Impact
Transferring a credit card balance can also have an impact on your credit score. When you apply for a new credit card to transfer the balance, the credit card company will perform a hard inquiry on your credit report. This can lower your credit score by a few points.
Additionally, if you’re transferring a balance to a credit card with a lower credit limit than your original card, your credit utilization ratio could increase. This could also lower your credit score. It’s important to carefully consider the potential impact on your credit score before making a decision to transfer a balance.
In summary, transferring a credit card balance can be a useful strategy to save money on interest payments. However, there are potential risks involved, including high balance transfer fees, high interest rates after the introductory period ends, and a potential impact on your credit score. It’s important to carefully consider these risks before making a decision to transfer a balance.
Your credit score will typically increase as you pay off the debt on the new card. So it ends up helping out in the end, but you have to realize your credit score will fluctuate around a bit during this time.
In conclusion, transferring a credit card balance can be a smart move for those who are struggling with high-interest debt. By taking advantage of a balance transfer offer, we can save money on interest charges and pay off our debt faster.
However, it’s important to be aware of the potential pitfalls of balance transfers. We should make sure to read the terms and conditions carefully, including any fees and the length of the introductory period. We should also be aware of how a balance transfer can affect our credit score and take steps to minimize any negative impact.
Before making a balance transfer, we should also consider our ability to pay off the debt within the introductory period. If we’re not able to pay off the balance before the introductory period ends, we’ll be subject to the regular interest rate, which could be even higher than our previous card.
Overall, a balance transfer can be a useful tool in managing credit card debt. By doing our research, understanding the terms and conditions, and being mindful of our ability to pay off the debt, we can use a balance transfer to our advantage and achieve our financial goals.