All You Need to Know About Transferring Credit Card Debts

A credit card balance transfer is done when you move the balance credit card due amount you need to pay back to another balance transfer credit card with great offers. This does not clear off your pending balance but only transfers debt from one account to another. If you are currently paying a high-interest rate, then a planned debt transfer strategy will save you some serious money. This is mainly done to lower the interest rate on the balance you own. It can either be 0% or a special low-interest rate based on the card you transfer the balance.

The key here is to pay back the balance amount timely, or it may cost you more than earlier.

But if you are planning to transfer the balance because you cannot make repayments right now, this is not the right option for you, and there are better ways to clear your debts.

Also, you need to note that balance transfers between cards can cost you a specific transaction fee, usually about 3-5% of the total debt transferred. So, you need to calculate how much transfer fee you are paying to ensure you are really saving money by transferring the credit card balance. Further, if your balance transfer card’s limit is low, you cannot transfer the entire balance in it.

How to Do Credit Card Balance Transfer?

The exact balance transfer process will vary widely from one card issuer to another, but the steps are generally the same for major issuers, as described below.

  1. Apply for a balance transfer credit card

    It will help if you do some good research to find out the card that offers you the lowest interest rate. If you have a good credit score, the chances of getting the best offers increase. Many cards offer 0% APR on balance transfers if payment is made during a specific timeline. Take advantage of this offer to pay off the remaining balance strategically.

  2. Initiate the balance transfer to your old account

    Once you are approved for a balance transfer card, you must provide them with your debt information, such as issuer name, debt amount and account information. You can do this over the phone or online as per the card account policy. Once you are done with this step, you need to wait to get the approval and transfer initiation.

  3. Wait for the transfer to go through. 

    Once your initiated balance transfer is approved, the process could take about 2 weeks or longer. The new card issuer usually will pay the amount directly to the old account, and the balance, along with the transfer fee, will reflect in your new card account.

  4. Pay the balance amount timely.

    When the balance gets added to your new credit card, you should ensure to make monthly payments. It is advisable to clear the payment during the initial 0% APR offer period to save a ton of money.

How Can You Make the Balance Transfer Work in your Favor?

If you are planning to transfer the balance to another credit card based on good balance transfer credit card offers, here are a few pointers that will help you make it work.

1. Check How Much You Can Transfer to Your Current Card:

Some cards issued to you will only allow a set amount to be transferred from your balance. This means you will be unable to transfer the entire balance to your new card. If you still have a balance left on your previous card, even after getting a new card issued, then you will have to pay fees for both these cards. At times, it is not worth it. Clear off all the balance of the previous card so that you can close it. This will you will only have to deal with the balance of one credit card.

2. Pay Off the Balance in Time:

The special low-interest rate on the amount you transfer is called the balance transfer rate. It lasts for a limited time, usually between six months and two years.

After that, the interest rate goes up. The new rate may be higher than the interest rate on your original credit card. If you haven’t paid off the whole amount yet, whatever is left will attract this higher interest rate.

Be realistic about what you can afford to repay in that limited time.

3. Cancel Your Old Card:

If you have transferred all your balance to the new card, ensure to cancel the old card. This way, you will avoid paying any card fees if that is applicable. This also ensures you avoid temptations to create more debt.

4. Limit Spending On Your New Card:

Remember the purpose of getting a new card for repaying your debts with no additional interest rate. Deviating from this by overspending on the card is going to increase the debt further. Also, the interest rate varies for purchases made by the card and will be higher if you do not timely pay the balance. Also, your payments will be used to pay for the purchases rather than the balance transfer, making the entire credit balance transfer process useless. Focus on clearing off the balance transfer amount before you spend anymore.

5. Protect Your Credit Score

When you apply for a new credit card, that adds up to your balance report and affects your credit score. This is why you should not apply for cards several times over a short time period. If you have already transferred the balance to a card, better pay off the debt rather than repeat the process. As your credit score goes lower, you will not be eligible for 0% APR rate cards.

How to Choose Good Balance Transfer Credit Card Offers?

When you transfer your balance to another card, your goal should be to save money by minimizing the interest rate you give. The right balance transfer credit card will have the following features:

  • 0% introductory APR offer for balance transfer
  • Zero annual fees
  • Zero or low balance transfer fee

With a card that offers all three, it becomes easy to pay off your debts without paying an extra penny on interest or fees. But it is tough to find a balance transfer card that offers 0 transfer fees nowadays. Hence look for a card that provides the lowest transfer fee. This is a one-time fee, though and is a better option to pay rather than piled up interest fees over several months.

Should You Do a Balance Transfer of Debt?

Before you make the decision of balance transfer as you find good credit card offers, better sit down to jot down a few things to make your decision easier. Transferring balance should absolutely be avoided in case you have a money shortage and are unable to pay off the debt. You should then seek a personal loan in such a scenario where you will get more time to pay off the debt. The interest rate of a personal loan is high, but it gives you the time advantage, making it possible for you to arrange for the money. If you do not pay off the debt of a credit card, then here also you can carry forward the amount with an interest rate that is very, very high; hence the loan is a better option.

A balance transfer works in your favour and should be applied only when you have the money to pay off the balance but looking to save some money by saving on the interest rate. Carrying forward credit card debt is going to reduce your credit score, and you will not be eligible for a 0% APR offer, hence paying off your debts as quickly as possible. Once you have this clarity, you can make an informed decision.