A balance transfer credit card lets you transfer the balance from one card to another. Typically, you would transfer your balance to a card with a lower rate of interest than the card you currently have. Moving debt to a card with a reduced intro APR will help save money. As the interest payments are smaller, you can usually pay off the debt faster. If you keep the debt on a high-interest rate card, you are paying more in interest and less of the total debt each month.
Before applying for a new card, you can view your potential variable APR in the terms and conditions. When applying for a balance transfer card, you may want to move multiple balances. If you have numerous credit card balances, it can simplify your finances by having them in one place. Making one low-interest payment each month will be more manageable and more straightforward than paying several credit card issuers.
How Do I Qualify for a Balance Transfer Card?
To qualify for an APR balance transfer card, you will have to go through the application process. The new lender will want to have all of the relevant information. You will have to provide information about the card from which you wish to transfer the balance. The company will need all of your personal information too.
As part of the application process, there is a credit check. A credit card company will look at your credit report and credit score. A credit report has the following information on it:
- Payment history
- Types of credit (mortgages, car loans, etc.)
- Credit history
- Applications for credit
If you have good credit, you are likely to be accepted for a new credit card. However, if you have some issues with your credit or have a low credit score, you might not be successful. So before going through the application process, you may want to know your chance of success. You can request a credit report for free from the Annual Credit Report Request Service. A request is free once per year and can cover all three of the credit reporting agencies.
How Can I Improve My Credit Score?
Once you have your report, you should look at it in detail. A credit report will show your entire credit history, so if there are errors, it’s essential to get them fixed. If your credit score is low, there are some things you can do to improve it:
- Check your credit report annually
- Fix any errors
- Pay your bills on time
Maintaining good credit requires being consistent with your payments and bills, such as your mortgage or credit card bills, which helps your overall score. A new credit card company will look at your history, so it’s essential to have a good standing with lenders.
What Should I Look For in a Balance Transfer Card?
The credit card market is highly competitive; you will find lots of enticing deals out there. When considering any new type of credit, you should always do your research. Many lenders allow you to transfer balances from credit cards. The offer may look good, but you should consider these factors:
- Balance transfer interest rates
- Annual fee
- Annual percentage rate (APR)
- Promotional periods
Moving your credit card debt to another provider will often incur a balance transfer fee, which is usually a percentage of the amount you are moving over. Typically, transfer fees range from three to five percent, so try to find the lowest one possible.
Balance Transfer Interest Rates
Typically, the balance transfer amount is subject to an introductory rate. You will find lots of offers that give you zero percent as an initial rate. However, there may not be an introductory APR on purchases made with your card, so always check the terms and conditions of the card issuer.
Credit card companies sometimes charge an annual fee. If there is a fee, it may make the card less favorable compared to others. Try and find deals without a yearly fee so that you get the best balance transfer credit card.
When you take out a card with a balance transfer offer, it is subject to a promotional rate period. The promotional rate of interest on the balance transfer is an essential factor. Look for a card with a long promotional period. If you take out a 0% intro APR credit card deal, you will have more time to reduce your debt, as the monthly payment goes towards the debt instead of interest payments. After the promotional period ends, the balance will be subject to interest charges again, so find a card with as many months at the lowest rate possible.
Other Things to Consider Before Choosing a Balance Transfer Deal
Managing personal debt is a balancing act. Using a balance transfer card can help you reduce your overall debt. Successfully paying bills and managing money keeps your credit score high, which can approve you for a balance transfer card. When you are considering a balance transfer deal, you should keep in mind the following questions.
Are the Interest Savings More Than the Fees?
The deal with the new card company should have a lower interest rate than your current card (or debt) so that you save money. Sending your current credit card debt to a new provider can incur a fee. The variable APR of the new card may be more desirable, but the extra costs of fees could cancel out any potential savings. Check that the transfer fee and other fees associated with the card work in your favor. Calculate the savings you will make on interest charges so that you get the best credit card deal.
How Much Can You Reduce the Debt During the Promotional Period?
A 0% interest credit card transfer is a fantastic tool that can help you minimize your debt. As there are no interest charges during the promotional period, our payments reduce the balance rather than going towards the interest. That means your debt goes down faster. It is a handy way of reducing credit card debt, but only if you manage payments. Consider whether you can clear the balance during the no interest rate period. If you can, you will be free from credit card debt.
For large debts, try to pay as much as possible before the low-interest rate ends. It only works if you make it work. Pay off the balance, but don’t add to your debt by spending more on the card.
How do I Apply for a Balance Transfer?
If you are considering applying for a new credit card, there are things to do first:
-Check your current variable APR and balance
-Find the right balance transfer deal
-Look at the intro APR on balance transfers
-Read all the terms and conditions
Having all the information before making an application is vital. You may think the new credit card company is better, but upon closer examination, it might not be. Look at your current credit card statement to see the interest rate. With this information, you will be able to find a balance transfer deal that improves your situation. Go with a company that gives you a lower APR on balance transfers than what you are currently paying.
Checking the terms and conditions is always advisable. A balance transfer deal is not usually free, so check what fees are applicable. See if there are restrictions or limits before making the application. Some credit card companies won’t allow you to transfer balances from specific cards, especially if they are the same brand. In short, always read the fine print so that you are fully aware of what you are signing up for.
Applying For a New Credit Card
Once you have all the information you need and have chosen a suitable card, you will have to complete an application. Typically, a balance transfer card application is an online process. It is quick and easy to do, and you will usually get an answer soon after.
You will need to provide your personal information and the amount of money you want to transfer. The new company will likely want all the details of your current credit card.
There is usually a short wait to see if you qualify. Some companies can do an instant credit check; for others, you may need to wait to receive a confirmation via email.
Credit Score Requirements to Get a Credit Card
If you are searching for your first or a new credit card, then your credit score is essential. The stronger your credit score, the more likely you are to pass your credit card application. A credit score may also affect the credit card limit, increasing its importance.
Credit card providers use credit scores to understand your financial history. It allows them to assess their level of risk in offering credit to you. Mostly, they want to know that you have the means to pay them back.
Your Credit Report
Your credit report consists of data from the lenders you use. You may have data for a car loan, a mortgage, or a credit card. These companies share information with credit score organizations; this lets others know if you pay your bills on time.
Your credit report assesses your
- Payment history
- Credit mix
- Total debt
- Length of credit history
- Recent credit applications
There is no one credit score that credit card providers across the board use. A credit score from FICO of over 670 may qualify you. With VantageScore, you may need a score of 700. However, it is still possible to get a card if your credit score is below 600. There are credit cards for people with bad credit and people with limited credit history, such as students.
Partial Balance Transfer
If you are moving credit card debt between financial institutions, you might have to do a partial balance transfer. Moving any amount of debt to a lower interest rate is always a good thing. However, sometimes, even though you may want to move the whole balance, you may not be able to. Partial balance transfers may be your only option in such situations, like the following.
Balance Transfer Limits Apply
Your new card issuer may have a limit on the amount of card debt they will allow you to move. You could qualify for a particular credit amount. Not all of that limit gets reserved for a balance transfer. Because the transfer is usually subject to a promotional rate, the lender may limit it.
Card Credit Limit is Lower Than Your Balance
If you are applying for a new deal with a bank, your limit may only go up to a certain amount. A promotional offer or new credit card account could have a limited balance available. If your card transfer is higher than the limit on the new card, you will only be able to do a partial balance transfer.
Your Credit Score is Low
When an application for any credit goes through, the bank will check your credit score. If you have a low rating or weak line of credit, you may not get the card limit you need. A financial institution will likely you a card that corresponds to your credit score. Thus, the offer may only cover part of the balance you want to move.
Transferring Multiple Balances
Dealing with debt can feel overwhelming. If you have multiple credit cards, you may find it challenging to manage your payments. Streamlining your finances by transferring various balances to one card can help. Making payments to multiple banks and card companies can feel stressful. Moving the balance of those different cards to one credit balance can make your financial planning much more manageable.
Taking steps to manage your money will help you secure your financial future. Moving credit card balances to a single lower interest rate card can help you achieve this. When transferring multiple balances, you should consider
- The number of balance transfers the new provider allows
- The amount you can move to the new card
Many banks will allow you to move multiple balances to a new card. However, there is usually a limit, so you should check with your card issuer. Typically you can move up to 5 accounts to a new card’s balance, but each offer will be different. When you make a balance transfer application, you will see how much of your old balance you can transfer.
Additionally, be mindful that a new credit card usually allows for only a certain percentage of the card limit to be balance transfers. If you have a large amount of card debt, check the new card has a high enough credit allowance.
What Other Debts Can I Transfer to a Credit Card?
A low-interest rate on a balance transfer card doesn’t just have to be for other credit card debt. If you have been looking at improving and streamlining your financial situation, consider transferring different kinds of debt. Depending on the bank or card issuer, you might be able to transfer any or all of the following:
- Personal loan
- Car loans
- Student debts
- Home equity loans
- Gas station card balances
- Department store cards
This kind of debt consolidation can be a good move if you have multiple payments, but make sure you do your research first. See what the interest rates on your other obligations are. If the new card rate is a lower rate or even zero, you can consider moving other loans to it.
Are There Any Restrictions?
There are some restrictions on types of debt that apply to a transfer card. You can’t move the debt between products from the same banks and financial institutions. So if you have an American Express (Amex) credit card, that debt can’t go to a new Amex balance transfer offer. If your loans and other debts are from different providers, these can move to a single source. For example, a Bank of America student loan and car loan from Chase Bank can go on to a Barclaycard or a Citi card.
Some other card types, such as store cards or gas cards, are provided by affiliates of banks. You should check which bank the debt is part of before trying to transfer it to a card offer. You will also need to check on cash rewards and reward points. You may lose these when you close an account.
After the Balance Transfer Period
Once you have your new balance transfer deal, you should start to pay off the balance as quickly as possible. The promotional interest rate will have a limited grace period. Once that promotional offer ends, the interest rate will change. This revert rate will typically be the standard APR on purchases or cash advances, which is usually quite high, so it’s crucial to get the balance down.
Depending on the card offer, the low (or no) interest rate period will only run for a set time. The time can be six months, a year, or longer. Due to this time constraint, you should try to pay your balance off during this set time. If you can’t pay the total, aim to pay off as much as you possibly can.
You should calculate your total debt, the payments you would need to make each month to clear it, and the rate after the promotional period. If you don’t think you can remove the debt during the promotional offer, you may have a couple of options. Significant debts can be challenging to pay off in the short-term. You may want to consider some other strategies once the promotion has ended.
Transfer the Balance Again
When the low-interest rate is no longer applicable, you can consider moving the balance again. However, there’s one thing to note when planning to transfer a balance yet again: it will have to be with a different provider. So, if you took out a balance transfer with Capital One, you will have to choose another bank the next time. You will again need to check all of the associated fees and make sure the deal works out in your favor.
Extending the Balance Transfer Rate Period
Sometimes a bank is willing to extend the promotional rate. If you have been consistent with your payments or if you hold other products with them, you could negotiate an extension on your promotional period. Towards the end of the promotional offer is a less advantageous time to ask, so do it early.
Speak to your bank or credit card issuer. Asking for an extension to the promotional offer doesn’t always work, but it’s worth a try. The company will lose out if you decide to transfer the balance out to another provider. So, they may see that it is a good idea to give you a better deal in order to keep you.
Do Balance Transfers Affect Your Credit Score?
A balance transfer card is a useful tool for reducing debts. Taking a balance from a high-interest rate to a lower one makes it much easier to pay off. While you pay off the debt, you will save much more money by moving it. But what does it do to your credit score?
It won’t affect your credit score directly. However, each credit card application can drop the number by a few points for a short time. When you apply for any credit, you are allowing the lender to look into your history.
All applications for credit cards or loans that look at your credit history can have a minor effect on your credit score. It usually doesn’t last for very long, and as you create a history of successful repayments, you improve your credit score.
Are There Any Other Effects on My Credit Score?
Asking to see your credit score, such as requesting a credit report from Experian, doesn’t affect the number. However, every time you apply for any line of credit, it does. You should bear this in mind when looking at debt management solutions. Multiple applications over a short period can harm your overall score.
Applying for a balance transfer card won’t change your past credit history. If you missed payments on an old account, these do not disappear by taking out a new card. But, building up a pattern of regular payments and reducing your overall debt with the new credit card can repair your credit score.
Costs of a Balance Transfer
Before choosing a balance transfer deal, you will need to look at all of the expenses. A new credit card issuer does not offer a contract for free. There are usually costs for transferring the balance, but these can be minimal. A lower rate of interest will generally cancel out any of these fees.
Before you sign up or complete a credit application, check the costs of the card. You will need to consider the following :
- The transfer fee (typically between three and five percent)
- The length of the promotional offer period
- The revert rate (what the interest is after the promotional offer ends)
- The annual credit card fee
Balance Transfer Fees
A balance transfer fee goes to the new card issuer to whom you are transferring. The fee is often a percentage of the debt, but it may be a minimum dollar amount. Once you get approved for a balance transfer card, you will have some time to transfer the old credit card debt. You can compare the transfer fee to make sure you get the best deal.
When you have your new credit card, you will use it to pay off your old card. The promotional interest rate only applies if this happens within a certain amount of time. Make sure you know how long you have so you can transfer in time. Some card issuers will waive the transfer fee if you move over the debt quickly. For example, the Chase Slate is a no-fee balance transfer credit card.
Ultimately, you want your new credit card to help you pay down the principal on the old card. For this reason, you will need a card with the lowest fees possible. Using this type of credit deal enables you to take control of your debt and move towards financial freedom.
Is There a Maximum Amount You Can Balance Transfer?
The available amount on a balance transfer account depends on your credit limit. The maximum amount for balance transfers is subject to several factors. These include how much the lender is willing to give you and the issuers’ rules. Moreover, the card issuer may have specific limits for transfers. Before you decide on your card, make sure you know
- The credit limit
- The transfer limit
- Any compatibility issues
A new card with a promotional balance transfer offer is subject to specific rules. The card company applies these rules to any new application. You will have to make sure these rules work for you. An important rule is the credit limit of the card. It is the actual amount of money you can put on the card.
Your credit score usually affects the credit limit a card company is willing to give you. The card type can also determine the limit (e.g., a new promotion may have a small credit limit). Make sure you know the limit on the card so you know whether you will be able to transfer your old balance.
The credit limit determines how much credit you have, but the transfer limit is more important. A credit card company may give you a $5,000 credit limit, but a transfer limit of only $3000. You may get approval for the credit limit you need, but the maximum transfer limit may not be enough for you to move all of your debt onto the card.
The bank may also use a percentage to determine the limit that you can use for transfer balances. It can run anywhere up to 95 percent of the credit limit. So, for example, if you get a card with a $3,000 credit limit, you can transfer $2,850. Always check these rules before completing an application.
Banks and financial institutions do not usually allow you to move an existing balance from one of their products to another of their products. A Barclay debt card is not able to go over to another card from that same bank. Where this gets tricky is that a store rewards card balance may be from a specific bank. If you are taking out a balance transfer from that bank, you can’t put your store rewards card balance on it. You will be able to find out which banks provide the products you own by viewing the statements.
Does a Balance Transfer Close the Old card?
A balance transfer may not automatically close the old card account. In the process of account opening, your new card comes with a lower limit. However, there is still an amount to pay. So make sure if you do have a balance on the old card, you account for this.
You may be considering closing off the old card once you have done a balance transfer. Before doing this, you should consider the following:
- Are you going to use the card?
- Is there an annual fee?
- Do you intend to apply for other credit?
Using the Old Card
If you have been successful in obtaining a new card and taking the balance over, consider the old card. If you are moving the money to manage debt effectively, you may want to close your old one. It will affect your credit score when you terminate an old card, but if you can’t resist spending, closing the old card maybe your best option. Taking advantage of a low balance transfer is not going to help much if you are still going to rack up more debt.
Fees on the Old Card
Another thing to consider is the fees and annual charges for the old card. If the card issuer has a monthly or yearly fee, is it worth keeping it? A nominal or small credit card charge is worth paying for the benefit of your FICO credit score.
It is also worth considering rewards. If you have been collecting rewards, you may lose these when transferring your balance to a new card. Speak to your card issuer about possibly spending or cashing out rewards.
Applying for Further Credit
For future credit applications, having open card accounts is a good thing. A history showing that the card has a zero balance and has available credit is better for your score. A new lender will look at your lines of credit. They do this to see what others were willing to lend you and how faithfully you paid those debts. Thus, a history of good credit is essential for any future credit requirements you may have.
Should I Close a Credit Card with Zero Balance?
It can be tempting to close a credit card you no longer use. However, the old account helps your overall credit score. You may think one less card statement is good, but it isn’t when it comes to your credit. Closing a credit card account affects your utilization rate, which is one of the crucial factors in credit scores.
What is the Utilization Rate?
A utilization rate sometimes referred to as a utilization ratio, is an essential part of your credit score. It shows how much credit you are using relative to the amount of credit available. Essentially, it is how much you owe versus how much of a credit limit you have.
Calculations of your credit score use models that look at your utilization rate. Each open credit card increases the credit limit; if you only have a small balance on those cards, you are using only a portion of your available credit. It shows you can manage your debts and not overspend.
Strong Credit Scores
If you have a good credit score and a strong history, closing an old credit card won’t impact you too much. There may be a slight dip, but a good score can handle it. Even so, you should think about what you may want to apply for in the future. Leaving the account open helps maintain a stable credit history.
Poor Credit Scores
If you have problems with your credit and you have a low score, you should keep the card open. Keeping the card open will help your score by maximizing the utilization ratio. But only do this if you can resist spending. If you have late payments noted in your history, you should work to fix this habit. For those who may use the card and rack up further debt, closing the account is advisable. Adding more debt that you can’t manage will only put you further in the hole and hurt your credit score.
Balance Transfer Rates
If you are looking to save money, then balance transfer rates are something you need to know. You might have a high-interest rate on a loan, store card, or credit card. If you do, a credit card with a low or free balance transfer rate is something you should get your hands on.
If you have more than one debt with a high-interest rate, then you may be able to consolidate your debts. Many people find this beneficial because it is easier and less stressful to have only one payment to manage.
What Balance Transfer Rate should I Aim For?
Balance transfer rates, or balance transfer fees, occur once. They apply when you transfer your outstanding balance from another lender. On these balances, you might typically pay a balance transfer rate between one and five percent.
A credit card’s low intro APR on balance transfers will last for a limited time. After this period, you will pay the regular interest rate on your remaining balance. Lower balance transfer rates will help you pay down your debt quicker, as less of your payment goes to interest. Additionally, you should look for a low annual fee and low cash advance fees.
Lastly, it is worth noting that when you make a payment, it will go to the balance with the highest interest rate first. This came into effect with the credit card Act of 2009.
Paying Off One Credit Card vs. Reducing Balance on All Debt
If you have multiple credit cards, this can be stressful, with several bills arriving each month. When you are looking to clear your credit card balance, you can focus on paying off one card, or you pay a little bit towards all. So which tactic works best?
If you want to save money and make the most progress, you should pay off one card at a time, focusing first on the one with the highest interest rate. You must continue to make minimum payments to your other credit cards, or you will encounter late fees or penalties.
The Fastest Route to Paying off Your Credit Card
Some people like to pay off the credit card with the lowest balance. It might feel more satisfying to get a balance down to zero, but it may be less effective in the long run. The fastest, most effective route to paying off your credit card is to pay off the card with the highest interest rate. Once you clear this credit card, you should move onto the card with the next highest rate.
To help with this, make a list of your credit cards and rank them on their interest rates. It is important to remember that different parts of your balance may have different interest rates. You should also be mindful of interest rate changes. You don’t want to get caught off guard by a low intro APR that is about to expire.
If you’re finding this overwhelming, know that there are online banking and budgeting that apps can help you manage finances. Additionally, the Federal Trade Commission Consumer Information offers further advice on coping with debt.
Balance Transfers: Pros & Cons
You may feel stuck in debt and are only able to pay the minimum payment on each credit card. If this is the case, then you may want to consider a balance transfer to a new credit card. Your balance transfer can help you move debt from one credit card to another. Alternatively, you may consolidate several debts from several credit cards onto one. Your motivation will be to save money on interest and pay off your debts quicker. The lower the introductory APR for balance transfers, the more motivated you will be to pay off your balance quickly.
But everyone’s financial situation s unique, so consider the pros and cons.
The Pros of Balance Transfers
The pros of balance transfers include the following:
- Saving money on interest
- Focusing on one payment
- Concentrating on one due date
- Saving time paying bills
- Long-term improvement of credit score
The Cons of Balance Transfers
The benefits of transferring a balance are clear. However, there are some things you should be aware of or consider.
You might incur a balance transfer fee, often between one and five percent. These fees are standard, so you should look for a card with a lower fee amount.
Additionally, some cards offer a low-interest rate promotional period. But, this will have an expiry date, so look for one that has a long duration, such as 18 or 24 months.
You might also experience the temptation to use the new credit card to make purchases. However, this can result in increasing your total debt. There is also a chance that if you have poor credit, you won’t be able to get another credit card. You could also see a short-term reduction in your credit score (though this can increase again over time).
Best Balance Transfer Deals
By now, you may be seriously looking to transfer a balance. If this is so, then you are likely hoping to save money, consolidate your debt, and simplify your monthly expenses. So, what should you look for when searching for the best balance transfer deals?
If you have credit cards and loans, then look for a credit card that supports transfers from both.
There are three things to look for when finding the best balance transfer deals. We’ve discussed them already, but let’s refresh on them one last time:
- Low balance transfer fee
- Low-interest rate
- Long promotional period of the low-interest rate
Balance Transfer Fee
Credit card companies will charge you a balance transfer fee when you transfer your debt. The typical balance transfer fee that you will see is around three percent. Some credit card companies offer a lower price, but they may also provide a shorter period of low interest.
It is good advice to be in a position to transfer a balance quickly, before committing to an intro APR promotion. Most promotions will give you 60 days to transfer your balance.
Many providers will offer you a balance transfer credit card with a zero percent interest rate. However, a three percent interest rate is still reasonable. You may intend to also use the new credit card for new purchases and spending. If this is the case for you, then you should look at the regular interest rate, as well.
The promotional period of low interest must last for at least six months, under US law. However, you can find promotional periods that last for 18 months or more.
While the world of personal finance may seem overwhelming, there are tools out there to help you. When choosing the best credit card for balance transfers, find one that suits your needs. Research is essential, so look into the terms and conditions of any offer.
A balance transfer can give you a favorable intro APR while you pay down your existing debts. Make sure you don’t add more debt and make sure you pay it off as quickly as possible.
Have you found a great credit card deal? Have you successfully managed your money using balance transfers? Share your comments below.
Additional Topic: A Guide to Your Refinance Options.