Key Takeaways
- Balance transfer consolidates multiple credit card bills into single monthly payments at 0% or lower interest rate for promotional period.
- You typically pay about 3% balance transfer fee, and interest rates increase significantly after promotional period ends.
- Don't use balance transfer card for new purchases as they may attract higher interest rates and increase debt burden.
- Transferring balance again and again can hamper your credit score as future lenders may consider you risky customer.
Is it difficult for you to manage your multiple credit card bills? Are you forgetting the due dates of your multiple payments, and feel like having only one payment against all your credit cards? It will help you manage your payments… right?
If you're in this situation, you can decide to consolidate your credit card bills. The best option you have in hand is the Credit Card Balance Transfer.
Go through this article to know how to consolidate credit card debt with a balance transfer method. Also, listed here are the Do's and Don'ts of Credit Card Balance Transfer. It's advised that you thoroughly understand them before initiating a balance transfer.
Balance Transfer - What Is the Process?
You may have to take out a new credit card to repay your existing credit card debts. By transferring the balance from a high-interest credit card to one with a lower rate, you are, basically, paying back credit card "using the new credit card."
Example Calculation:
If you are paying 13% interest for a debt amount of $2,000, then you'll have to pay $347 for six consecutive months. But, if you transfer the same debt amount to a 0% annual percentage rate (0% APR) card, then your monthly repayment amount will be about $334, thereby saving a neat $77 in interest, every month, out of the process.
According to Mike Sullivan, the director of education for the Phoenix-based nonprofit consumer credit counseling company, Take Charge America, the real and most definable advantage of a balance transfer card is that you save money in the long run, provided you repay the entire outstanding balance within the low introductory rate period.
Why Is This Offered?
Basically, credit card companies dole out these 0% APR cards or balance transfer cards out of their own business interest. Through these offers they want to attract fresh customers with somewhat good credit for the next 2-4 years and keep the existing ones hooked onto their cards, to ensure a steady stream of business trickling into their coffers. This helps them to beat increasingly-robust competitors. Moreover, you have to pay interest on the amount transferred, which is their income.
They do such business by offering credit cards at 0% interest rate (also known as teaser rates) for a definite, promotional period.
Still, due to reckless spending behavior, many customers fail to make timely debt repayments, particularly prior to the expiry of the promotional period. Hence, the creditors stand to make money from the interest paid by the customers.
Once the teaser rate period or the grace period is over, they levy different charges on the existing balance on the card. Also, some balance transfer cards are offered with T&C that different interest rates are charged for new purchases.
Also, you may need your creditors' approval to opt for the balance transfer to consolidate your credit card (cc) bills and pay them off.
Advantages of Consolidating Credit Card Debt with Balance Transfer Method
- • You can repay debts at 0% or relatively lower interest rate.
- • Consolidate and pay off your multiple cc bills through single monthly payments.
- • You can manage your finances better.
- • Your credit score may improve after paying off the entire balance.
- • You can get away with predatory loan terms like high charges, poor grace period, etc., and get something much more convenient and helpful.
Disadvantages of Consolidating Credit Card Debt with Balance Transfer
- • The interest rate for a balance transfer (on a new purchase) may be more than the existing credit card interest rate.
- • Usually, you have to pay a balance transfer fee, which is a percentage of the amount transferred. Add to this the annual fee of the card.
- • You may not qualify for the 0% interest rate if your credit score is not good.
Do's and Don'ts of Credit Card Balance Transfer
While trying to consolidate credit card debt through a balance transfer, you need to review its do's and don'ts.
The Do's:
- • Check out the introductory period - Know how long the low-interest rate period lasts before rates increase significantly
- • Plan a budget to save more - Create a suitable budget to save money each month for paying off outstanding balance
- • Compare offers - Shop around for cards with longer 0% introductory periods and lower transfer fees
- • Check out credit score - Verify your credit score before applying to avoid rejection
- • Read the fine print - Check how much interest rate increases after 0% period and all transfer fees
- • Pay the balance transfer fee - Be prepared for typically 3% of transferred balance as fee
The Don'ts:
- • Don't spend lavishly - Avoid using credit cards until you clear all dues completely
- • Don't close your old credit cards - Closing oldest cards lowers credit history and may lower credit score
- • Don't forget to revise the transfer - Verify money was transferred properly to old and new creditors
- • Don't transfer online - Apply in person to learn about long-term interest rates after promotional period
- • Don't use it for purchases - Avoid new purchases as they may incur high interest charges
Consolidating Debt Can Worsen Your Financial Condition
Transferring your high-interest debts to a card with a lower rate of interest becomes easier to repay your outstanding balance in your credit cards. But it may also entice you to take on additional debt and increase your debt burden.
Important: Some balance transfer cards have terms that new debt collects much higher interest rates. Only transferred debt qualifies for zero or lower interest rate.
However, do not close the card even after transferring the balance. This is because the credit limit won't decrease and that helps you maintain or improve your credit score.
It Is an Introductory Period Low Rate Offer Only
The teaser rate of zero percent or exceptionally low rate of interest often entices customers to opt for it. However, remember that it's only for the introductory period that usually lasts for 6 months to 1 year. Occasionally it may be more than a year.
If you have an unpaid balance on your card after the promotional period is over, you may have to pay more on interest than what you had been trying to get rid of. So, even if you make new purchases with your balance transfer card, make sure you repay the entire balance within the introductory period.
Gather Knowledge of How Credit Card Company Will Allocate Your Payments
If you have your transferred balance along with the outstanding payment on the new purchase, then it's on the company how it will allocate your payments. Usually, you can't instruct your credit card company what to do.
As per the Credit Card Act of 2009, credit card companies need to allocate your payment, more than the minimum, to the debt with the highest interest rate. However, companies can apply payment to lowest interest debt, increasing interest charges on highest interest debt. This usually happens when you do new purchases with your balance transfer card.
You Will Have to Pay a Fee to Opt for Balance Transfer
Do you think you can transfer the balance to a low-interest rate card free of cost? No, not really. In most cases, you will have to pay a percentage of the total amount you're transferring to another card.
Example: Usually, the fee for a balance transfer is about 3% of the transferred amount. So, if you transfer $20,000, then you'd have to pay $600 as fees. It will get added to the outstanding balance on your card.
If you're fortunate enough to get a hold of a card that's free of cost, then the introductory period might be comparatively less. So, weigh your options and make your decision wisely.
Good Credit Score Plays an Important Role
Here also, in the case of a balance transfer card, your good score can help you take out a zero interest rate card. Before the recession of 2009, zero rate cards were offered quite a bit. But, things have changed now.
In the present times, if you have a good or excellent score, it'll help you obtain a balance transfer card at zero interest or at an exceptionally low rate. So, what will you do if your score is not good? Don't worry! Look for other options to consolidate and repay your credit card bills.
"You Can Transfer Balance Again and Again" - Think Again!
If you think that once the introductory period ends, you can simply transfer the balance to another card and that will continue for some time. Yes, you can do that. But hold on!
Warning: Transferring your credit card balance, again and again, can hamper your credit score and it can go down a bit. When you open new low-interest rate accounts that carry a high balance amount, your future creditors and lenders can consider you as a risky customer. As a result, you may have to pay much higher interest on your secured high price items like buying a car or even purchasing a property.
How to Use a Balance Transfer Card Smartly
1. Give Importance to Highest Rate Cards
Transfer balances from your highest interest rate cards first. A balance transfer card allows you to transfer multiple credit card balances into it with zero or low-interest rate for a definite promotional period.
2. Create an Emergency Fund
Create an emergency fund while paying off credit card debt via balance transfer card. An emergency fund provides financial cushion for unplanned life events like car repair or medical bill payment.
3. Same Bank Balance Transfer Isn't Allowed
You can't transfer balances from one credit card to another if they've been issued by the same creditor. You'll have to look for balance transfer cards with other credit card issuers.
4. Spot the Difference Between Cards
0% APR cards come in two types - introductory rates-purchases and balance transfers. Both offer zero interest but work differently:
- • Introductory rates-purchase card: No interest on purchases during promotional period (6-18 months)
- • Balance transfer card: 0% interest on transferred balances with transfer fee, but no fee for purchases
5. Follow a Payment Plan
Create a practical monthly budget and debt repayment plan. Use online budgeting tools to determine affordable monthly debt repayment. Never cancel your cards as doing so may lower your credit to debt ratio.
Consistency is vital: Once you've decided on monthly repayment amount, consider it non-negotiable. Speed up debt repayment by putting in extra dollars such as work bonuses or tax returns to become debt free faster.
Ready to Start Your Balance Transfer?
Use our debt calculator to see how much you can save with a balance transfer, or speak with a debt relief specialist to explore all your options.
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Good Nelly
Financial Writer & Credit Card Consolidation Specialist
Good Nelly is a financial writer specializing in credit card management, balance transfer strategies, and debt consolidation methods. With comprehensive knowledge of promotional APR offers, balance transfer mechanics, and smart debt payoff strategies, she provides practical guidance for individuals seeking to manage multiple credit card bills effectively. Her work focuses on helping readers understand the advantages and disadvantages of balance transfers, navigate the do's and don'ts, and use balance transfer cards smartly to achieve financial freedom.