8 Smart Ways to Maximize a Balance Transfer

Doing a periodic check-in on your budget is always a good idea. You get the opportunity to see if there are any updates you need to make based on recent life changes—marriage, kids, promotion, etc. And, really, there’s no bad time to do it. Like many others, you may find the beginning of the year is a good time for this financial review.

The first step is to define your goals and priorities. Do you want to focus on saving more for retirement, increasing your credit score or something different? From there, you can craft your budget to align with those goals, along with a strategy to get you there faster.

One debt management tool that can be useful for anyone looking to eliminate credit card interest fees is a balance transfer. Start by finding a credit card with a lower interest rate than your current card, then transfer your balance (or a portion of it) to the new card.

The idea is that the transferred balance on the new credit card will accrue low or no interest during an introductory period—usually anywhere from 6–24 months. After which, the interest rate will increase to the standard rate. Save the most money by paying off the balance before the end of this introductory period or be prepared to pay interest on the remaining debt.

You may even find a balance transfer offer that pays you! Some credit card issuers or financial institutions run promotions offering a cash back bonus—usually around 3% of the total balance you transfer.

Here are 8 tips to make the most of your balance transfer:

1. Check your credit score. It’s a good idea to know where you stand before applying for a new credit card because a good or excellent credit score is typically required to get the best deals—like low or no interest. Everyone is entitled to a free credit report annually from each of the three main credit bureaus. Visit annualcreditreport.com to get yours. Or, if you’re just looking for a general idea of your credit score, most financial institutions and mortgage companies provide this in their mobile apps.

    

   Don’t worry—a balance transfer doesn’t affect your credit score directly. Credit-scoring companies don’t use them to calculate your score nor are balance transfers recorded on credit reports.
    

2. Decide how much you want to transfer. There are a couple of things that go into this decision. First, you may not qualify for a credit limit high enough to transfer your entire balance. There may also be the question of whether or not you should, even if you do qualify. A partial transfer may be a better tactic unless you’re confident you can pay off the balance in full during the introductory period.
    

3. Make a payoff plan. Balance transfer cards are good for a specific purpose and need a proper exit strategy. Use a credit card payoff calculator to estimate how long it will take you to pay off your balance before the regular interest rates kick in. The calculator can also help you figure out how much you can save if you have a specific monthly payment in mind. To determine the right transfer amount for you, identify what monthly payment you can comfortably afford to make. Multiply that amount by the number of months you have in your introductory period (before the interest rate increases). This is the amount you can afford to transfer.
    

4. Be aware of balance transfer fees. The point of a balance transfer is to save money. This happens because of a lower interest rate. The danger is that you offset any savings by paying unnecessary fees—possibly unknowingly. Compare any necessary fees to the amount you stand to save, then decide if it’s worth it.
    

5. Shop around for free balance transfer offers. Balance transfer offers, in general, are fairly easy to come by. However, deals that don’t charge a fee are not always as easy to find. So, when you first start considering a balance transfer, keep an eye out for them. You may even come across a 0% interest offer which don’t charge transfer or interest fees during the introductory period and typically require a good or excellent credit score.

    

   Another great balance transfer offer to watch for is a cash back bonus. This is where the credit card issuer pays you to transfer your balance.

    

   Finding the best balance transfer deal for you is about more than just an interest rate. When choosing a new credit card, it’s important to compare all the terms to make sure you’re actually saving as much as you think. It can be easy to fall for a promotion based solely on the advertised interest rate. Then, once you’ve gotten the credit card, you find out there are additional fees or rate hikes you weren’t aware of—all of which eat away at the savings you were expecting. Use the balance transfer calculator to compare offers.
    

6. Understand how to leverage a balance transfer. The most obvious way to use a balance transfer, of course, is as a debt management tool. However, that’s not the only way. It can also be used as a way to save money. Transferring a high-interest balance to a low- or no-interest credit card with an interest-free introductory period can make a noticeable reduction in the amount it takes to pay off your debt. Just make sure you don’t use it as an excuse to spend more and run up the balance on other credit cards.
    

7. Don’t close your original credit card account. Even if you don’t plan to use the credit card that you transferred a balance from, don’t close it. Having that available credit helps your utilization rate stay low which, in turn, helps your credit score go up.
    

8. Don’t make new purchases with your balance transfer credit card. So, now you have this great credit card that has low or no interest, right? Why not pick up a few things you’ve been wanting and save on the interest? The only way this strategy works is if you understand that the goal is to pay off the credit card before the introductory period comes to an end. More purchases will just make that goal harder to achieve. And, if you don’t pay off those purchases in time, whatever you have left will be subject to finance charges and interest fees, which can quickly eat up any savings you scored with the balance transfer in the first place.

Looking for a balance transfer to kick off your 2022 budget and get you out from under interest fees? Review your budget and then check with Mountain America Credit Union. We’d be happy to help you understand if this debt management tool is right for you!