Transferring Credit Card Balances To A New Card
Have you been approved for a new credit card with a 0% interest balance transfer offer? Here are the steps you'll want to take before you actually transfer a balance from an old credit card to a new one and the steps for completing the transfer.
1. See where you stand and choose balances to transfer.
List all of your credit cards, their balances and their interest rates. Choose one or more cards with high rates whose balances you'd like to transfer to save money on interest. The balance doesn't have to be in your name to qualify for a transfer, so if your new spouse has a high-interest credit card balance and you have excellent credit, you might use a 0% balance transfer offer to help pay off his or her old balance and start over together debt free.
2. Calculate your balance transfer fee.
Note the balance transfer fee and calculate the fee you'll pay on the amount you want to transfer. The fee is typically 3%, meaning you'll pay $30 for every $1,000 you transfer. With the new, lower interest rate, will you still come out ahead after the balance transfer fee? Use a free, online balance transfer calculator to do the math.
3. Understand the penalties.
When you transfer a balance at 0%, you still have to make the minimum monthly payment on your balance to keep the 0% rate. Pay attention to the interest rate you'll pay if you lose the 0% rate because you miss a minimum payment. Will it be a penalty rate that's worse than what you're paying now? Given your payment history, that a risk you're willing to take?
4. Know when the promotion ends and what happens when it does.
For how many months is the 0% rate valid? It's usually 12 or 18 months. If you're planning to pay off a transferred balance during an introductory period, calculate whether you're likely to be able to pay it in full during that time. If not, what interest rate will you pay when the introductory period ends, and will you still come out ahead?
If the interest rate is variable, how high can it go and how often can it change?
5. Check the time limit for completing the transfer.
If you're opening a new credit card account to take advantage of a 0% introductory APR on balance transfers, the terms will require you to complete the balance transfer within a certain number of days of opening your account to receive the 0% rate. You'll have a small window of time, usually 30 to 60 days after getting approved for the card, to actually complete the transfer and get the 0% rate. Read the fine print carefully to see how big that window is. Complete the transfer the day after that window closes and you'll pay the regular balance transfer rate, not the promotional 0% rate.
6. Make sure you meet the basic requirements for the balance transfer.
You cannot do a credit card balance transfer if your new account is with the same company as the balance you want to pay off – for example, you cannot transfer a balance from one Citibank credit card to another. Also, if you have a past-due payment with the creditor to which you want to transfer the balance, or if you have filed for bankruptcy, your transfer request may be declined.
7. Decide how much to transfer.
Check the credit limit on your new card: You can't request a balance transfer for more than your available credit line, and balance transfer fees count toward that limit. For example, if you have $10,000 in available credit, you won't be able to transfer a $10,000 balance with a 3% balance transfer fee; you'd need to have $10,300 in available credit to complete the transaction. The most you'll be able to transfer is around $9,700.
8. Decide where you want the balance transfer funds to go.
Do you want them to go directly to another creditor to pay off your balance? Do you want the funds deposited to your bank account so you can pay off other debts? In the latter case, make sure the credit card explicitly states that having funds deposited to your bank account will not be considered a cash advance. If you accidentally take out a cash advance, you'll pay interest on the transaction immediately, and usually at a high rate.
9. Request the balance transfer with your new creditor by following its specific instructions.
Each credit card company will have its own instructions for completing a balance transfer, but the instructions will look something like this:
For balance transfer checks: Simply make the check out to the entity you want to pay. Some credit card companies will even let you make the check out to yourself, but again, make sure this won't be considered a cash advance.
For online or phone transfers: Have the name, payment address and account number for the balance you're paying off and know the amount you want to transfer.
For direct deposit: Have the bank account and routing number of the account into which you want to deposit the balance transfer funds.
10. Wait, and watch your old and new accounts.
Keep an eye on each old account whose balance you're paying off to see when the balance transfer clears. In the meantime, don't miss any payment deadlines on those accounts so you don't incur any late fees. Allow at least two to three days – and up to 10 days – for your new creditor to pay off your old creditor. Each creditor has its own timeframe for completing a balance transfer. Keep an eye on your new account to see when the balance has transferred over, and consider closing your old account so you won't be tempted to use it again and accrue more debt.
The Bottom Line
Transferring high-interest debt to a 0% interest credit card can be a good way to save money and make it easier to pay off your balance. Following these steps, along with changing your spending habits, will help you complete the process correctly so you don't end up worse off than you were before the balance transfer. For more information, read Shuffle Away Your Debt With Balance Transfers.