4 Ways to Eliminate Debt Using a Balance Transfer

Looking for a better way to manage your finances this year? When you’re putting together your debt payoff plan, be sure to consider a balance transfer.

What is a balance transfer?

A balance transfer is a type of credit card transaction where debt is moved from one credit card account to another with a promotional offer—usually a lower interest rate or cash bonus. Done strategically, such a move could help you pay down high-interest debt and save big on interest charges.

What are your options?

Balance transfer credit card promotions come in two major varieties—introductory APRs and cash bonuses.

• Introductory APRs—Some financial institutions offer a lower annual percentage rate (APR) on their credit card during a promotional period—usually the first six months to a year after you transfer a balance. If you take advantage of an introductory APR, make sure you keep track of when it will switch to a higher rate.

• Cash bonuses—Keep an eye out for cash bonuses, which are usually calculated as a percentage of the balance you transfer. Use that money to help pay down your credit card balance, and you're one step closer to being debt-free!

Be aware that balance transfers can come with costs and limitations. You may have to pay a balance transfer fee—usually 3% to 5% of the total amount transferred—and if the limit on your new credit card is low, you may not be able to transfer as much as you want.

Helpful strategies to reach your debt-free goal

Once you decide a balance transfer is right for your situation, keep these benefits and strategies in mind to get the most from this smart money move:

1. Find a credit card with the longest period of low or no interest.

   When choosing a balance transfer credit card, make sure to review the promotional period—the amount of time before the interest rate will go up. In your research, you’ll likely find promotional periods can vary from card to card. Most offers are from six to 12 months but may go up to 18 months. The longer you have a lower interest rate on your credit card, the better chance you have of paying off your total debt and maximizing your savings.

2. Make sure the amount you’re saving on interest is greater than the transfer fee.

   While moving your money to an account with low or no interest sounds great, it’s important to factor in any transfer fees into the equation. If what you are paying in fees outweighs the potential interest savings, it may not be worth it. After all, the goal is to eliminate debt, not add to it.

3. Strategize with a payoff plan.

   Depending on the credit card you choose, devise a strategic payoff plan based on the number of months the lower interest rate will last. Use a credit card payoff calculator to see how long it will take to diminish your balance at the lowest interest rate possible. If you choose a cash-back balance transfer, think about applying that money immediately to your balance.

4. Pay attention to your old credit card.

   Balance transfers take at least a few days, sometimes a few weeks, to process. You’re still responsible for payments to your original credit card until the transfer is done or the balance is paid in full. Missing a payment can result in a late fee and negative mark on your credit report, so continue to make your payments on time until you confirm the balance transfer is complete.

We are committed to helping you find ways to take control of your finances. If you need guidance on paying down your debt or have questions about whether a balance transfer can work for you, contact us online, in a branch or call our service center. We’d love to help get you on the path to being debt-free.

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