How to Use a Balance Transfer Credit Card

September 25, 2019

By Sherry Keyles

While it might sound difficult a credit card balance transfer is pretty straight forward. You can transfer an existing credit card balance to a new credit card with a 0% introductory APR offer period (currently range from 12-21 months). By moving your balance to a card with a zero-interest rate, more of your monthly payment will go toward paying off the principal (as long as you don’t add any more debt by making purchases on the new card). If you’re making your payments regularly, that would make it easier to reduce the balance.

When you transfer the entire balance from the old card, the card is now effectively paid off and you will make payments to the new card going forward. Because you will not have to pay interest during the introductory offer period, you can save money on interest and reduce your monthly payments so you can pay off the debt faster.

Most credit card issuers charge a fee (3%-5% of transferred amount) on balance transfers. The fee is added to your balance when you make the transfer. Before making the transfer, make sure you do the math to see if the balance transfer fee is negated by the large amount of interest you are saving.

Balance Transfer Card Considerations

Here are a few things to keep in mind when deciding on a balance transfer credit card.

Balance transfers aren’t for everyone. Credit card issuers typically require a high credit score (around 700) to qualify for a balance transfer credit card.

Make the minimum payment each month by the due date. If you miss a payment, you will be charged a late fee and, depending on how late the payment is, a penalty APR. In addition, many issuers will cancel your 0% introductory APR offer if you miss a payment.

Most card issuers will not allow you to transfer balances from an account with the same issuer. If you have a credit card account with Chase, you cannot transfer the balance to another Chase card.

4 Ways to Use Your Balance Transfer Card

Balance transfer credit cards can be extremely valuable if you use them in a way beneficial to you. The most common use is to eliminate credit card debt but there are other ways balance transfers can help you. Here are some of the top methods of using balance transfer cards.

Pay off credit card debt

If you have a significant balance on a credit card with a high interest rate, taking advantage of a 0% balance transfer credit card can help you reduce your monthly payment amount, saving you money on interest fees and helping you pay down your balance much faster.

You should use the limited 0% APR timeline as a “deadline” for paying off your balances. Setting a goal to achieve will motivate you to pay the debt off before the zero-interest offer ends. Once the introductory period is over, the card’s interest rates will revert to current market rates (which can be as high as 24%), negating any expected savings from the balance transfer.

The best strategy is to divide your balance by the number of months with 0% APR and pay the set amount each month. Don’t forget to add in the balance transfer fee when doing the calculations. The fee is often negated by the savings you get from the 0% APR period.

Pay off other debts

While balance transfers are generally used for credit card debt, some cards allow you to transfer debt from student loans, car loans, home equity lines of credit, and other purchases made on credit, such as furniture or appliances. Make sure to read the terms and conditions of the balance transfer credit card to determine they types of debt accepted. To transfer from loans, you will use balance transfer checks from your new credit card issuer.

Using a balance transfer card for other debts is very risky. If you don’t pay off the balance during the zero-interest period, the interest rate will increase significantly from the interest you were paying on your loan. For comparison, the average interest rate on a five-year car loan is around 4% and student loan interest rates range from 3.76% to 8.5%. Credit card interest rates can be as high as 25%.  To maximize the value, it’s best to use a balance transfer when you are close to paying off the loan.

Consolidate debt from multiple credit cards

Managing multiple credit card accounts can be difficult, especially when you have balances on all. Each account has a separate monthly statement and due date. With multiple payments to make with completely different due dates, the chances of missing a payment increase. Most credit cards charge a late fee and you may lose the 0% introductory APR offer for missed payments. By transferring all of your credit card balances to one card, you can make one monthly payment.

The balance transfer fee will be an important factor in debt consolidation since you will need to make several different transfers. You can find some balance transfer credit cards, which waive the balance transfer fee for a certain period. For example, the Chase Slate credit card waives the balance transfer fee for transfers made within 60 days from account opening.

Obtain emergency cash

Balance transfer checks are not only for paying down your debt. They can also be used to obtain cash in the case of an emergency. You write out the check drawing on your new card, deposit in the bank and use the money for the emergency. You then have the rest of the introductory period to pay back the money. Of course, you need to pay back the money before the no-interest period ends and pay the balance transfer fee up front. Having an emergency savings account or taking out a personal loan are much safer strategies but, if necessary, you can use a balance transfer credit card.

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