8 Simple Rules for a Better Balance Transfer

We typically associate the beginning of a new year with change and a fresh start. As December becomes January, our thoughts turn to things like exercise, travel, personal development and, of course, finances. If your list of resolutions includes a financial goal, you may be thinking about the best ways to achieve it.

Consider a balance transfer if reducing debt is on your resolution list this year. When used correctly, a balance transfer can be a valuable financial tool. Here’s what you need to know:

What is a balance transfer?

A balance transfer is when you move an outstanding credit card balance (or a portion of the balance) from a high-interest card to a new, low-interest option. This helps ease the burden, giving you a chance to pay off your overall debt faster.

How does it work?

Although it seems simple, be aware that, to reap the most benefit, you have to play by the rules. The idea is that the transferred balance on the new credit card will accrue low or no interest during the introductory period—usually anywhere from 6–24 months. At the end of this period, the interest rate will increase to a higher rate.

To make the most of this financial tool, be sure to pay off as much of the balance as possible during the introductory period. Once the intro period is over, you will start accruing interest on any unpaid balances—including what remains of the transferred balance, as well as any new purchases.

Prioritize and align your goals

Just like any other resolution, the first step is to define and prioritize your goals. Do you want to focus on saving more for retirement? Improve your credit score? Or are you most interested in paying off debt? Whatever you choose to focus on, once your goals have been prioritized, it’s time to craft a budget that aligns your goals with your strategy. If you need help with financial goal setting, consider meeting with a financial guide—a free service available at Mountain America Credit Union.

How to choose the right credit card

Once you’ve decided on a balance transfer, shop around to compare different offers. It’s okay to be picky—it may even be helpful to make a spreadsheet listing all the details so it’s easier to compare.

First, look at the length of the introductory period. Obviously, the longer the better. However, a shorter period may work if you are confident you can pay off the balance in full before it ends.

Next, keep an eye out for other benefits like no transfer fee, 0% interest or acash back bonus. This is when the credit card issuer pays you a percentage on the amount you transfer as a cash back bonus.

Lastly, thoroughly read the terms and conditions to find out about other items like additional fees or rate hikes that can quickly eat away at the savings you were expecting to gain. This balance transfer calculator can help you work through the math!

Tips for a better balance transfer

Once you’ve chosen the balance transfer credit card you want, read through these tips to stay on top of your goals.

1. Check your credit score

   Your credit score will be the biggest determining factor to qualify for the best interest rate. Luckily, your credit score is not directly affected by a balance transfer, as long as you make your payments on time. Take the time to check your credit score to see where you stand before you apply. Most financial institutions and credit card issuers have your credit score available right inside their mobile apps.

2. Make a payoff plan

   Balance transfer credit cards are great for getting a jump start on paying down debt. As we stated above, this tool will have the greatest impact (and you’ll save the most money) if the balance is paid in full during the introductory period.

   Not quite sure how to build your payoff plan? Use a credit card payoff calculator to estimate monthly payments and how long it will take. You can vary the information to explore your options for achieving an affordable monthly payment.

3. Pay on time

   An important goal for anyone who transfers a balance to a new, low-interest credit card should be to make your payments on time—every time. Late payments can result in fees, which may offset your savings and quickly make it more challenging to reach your goals.

   You’ve probably heard that making more than the minimum payment is the best way to pay off debt. If you find yourself paying late often, make a point of paying at least the minimum payment by the due date. That way you are not assessed a late fee and can always make a second payment within the same cycle to stay on track.

4. Start quickly

   The clock starts ticking on your introductory period as soon as the account is opened, so transfer your balance right away to fully utilize the benefits of the offer. Be aware that many cards have a deadline for when a balance can be transferred—usually between 60-90 days. If you don’t transfer the balance before then, you may not have the low or no interest deal you were expecting.

   PRO TIP: Once you make that initial transfer, don’t assume that everything is done. Check in with your old credit card issuer a week or so after you make the transfer to confirm the balance has been adjusted. If it looks like it hasn’t been made yet, contact the issuer to see if there is a problem.

5. Watch out for additional fees

   The purpose of a balance transfer is to save money on interest while paying down debt. There are things, however, that can distract from this goal. Like fees.

   Some fees are unavoidable—an annual fee, for instance—and most people are familiar with late fees and finance charges for carrying a balance. But did you know there may also be fees for things like cash advances, spending over your limit, returned payments and replacement cards?

   To ensure you understand the behaviors that will generate a fee, don’t neglect to review your terms and conditions document in full—it comes in the envelope with your new card or you can find it online. Compare any necessary fees to the amount you stand to save and decide if the balance transfer is still worth the time and effort.

6. Don’t close your original credit card account

   In most cases, it’s advised to keep the original credit card account open after you’ve transferred the balance. That newly available credit works in your favor by lowering your utilization rate—the percentage of your total credit that is currently being used. This rate is important for two reasons:

   • It’s one of the factors in calculating your credit score. So, a low utilization rate means a higher score.

   • It’s also something that is considered when applying for a loan.

   Some people, however, know it will be difficult to not overspend if they have an active credit card with an available balance. If you feel like this may be you, it’s okay to close it. The last thing you want to do is take steps to pay down debt just to run it up again.

7. Reconsider new purchases on your balance transfer credit card

   Not only will new purchases increase your balance and utilization rate, you should also consider how they might affect your goals. If you’re working toward paying off your debt, adding to your credit card balance will make it more difficult to pay it off before the introductory period ends. This could result in finance charges and higher interest fees.

8. Strategize your transfer

   Many balance transfer credit cards limit the amount you can transfer, so be choosy when deciding which of your high-interest credit card balances to move. Start with the credit card balance with the highest interest rate first, then, if you haven’t hit the transfer limit, move to the credit card with the next highest interest rate, etc. This strategy helps give you the most time to pay down the most expensive debt.

Used correctly, a balance transfer credit card can be a valuable financial tool to help manage debt and save money. Remember, finding the best balance transfer deal is about more than just an interest rate. Comparing all the terms to make sure it’s the best for your budget makes all the difference.