How to Make the Most of a Credit Card Balance Transfer

Applying for another card to deal with a debt problem might seem counterintuitive when your credit card obligations are threatening to get out of hand. However, this approach can be quite successful — if you manage the process with an eye toward avoiding the pitfalls.

To that end, here’s how to make the most of a credit card balance transfer.

Review Your Current Debt Situation

You’re going to need to know exactly how much you owe and interest rates associated with those debts. Thus, your first move should be to list all of your credit card balances, minimum payments and interest rates. This will help you determine whether or not the transfer card you’re considering will indeed be advantageous to your situation.

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Study the Terms and Conditions Carefully

Balance transfer cards almost always include some form of a “gotcha”, of which you must take note to use it to your best advantage. Pay specific attention to the APR (annual percentage rate) for purchases, transfers and cash advances (although these are to be avoided at all costs).

Zero percent offers typically apply only to transfers. A lot of transfer cards have fees associated with them as well. You’ll need to be on the lookout for those and try to find a card that doesn’t have them.

The other concern here is what happens if you don’t pay off the transfer before the introductory period ends. Some cards will apply interest retroactively to the entire transferred amount, regardless of the balance at the termination of the introductory offer.

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Plan Your Repayment Strategy in Advance

Once you’re clear on the expectations the card issuer sets forth, devise a strategy by which you’ll pay off the transferred amount within the introductory period, so as to avoid the interest charges.

For example, you’ll want to make sure you can clear your credit card consolidation balance within 12 months if that’s the duration of the offer. Divide the intended transfer amount by 12 to make sure those payments will fit into your budget.

Transfer the balances with the highest interest rates first to save as much money as possible during the period in which you can pay the debt down without incurring interest charges. Again though, be careful to transfer only the amount you know you can pay off before the introductory period ends.

Make Timely Payments

The biggest chunk of your credit score is based upon your payment history (35 percent). A key aspect of this is the timeliness of your payments.

In addition to the detrimental effect missing a payment can have on your credit score, it could also disqualify your eligibility for the special rate. Some cards impose a penalty APR in the event of a late or missed payment.

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Keep The Paid Accounts Open, BUT—

Another key factor of your credit score is credit usage. Each card you pay off will have an associated credit limit. When you move those balances to another card, their available credit to usage ratio will drop. This can help raise your credit score.

However, you must resist the temptation to reuse those cards while you’re paying off the transfer card. In fact, you should do everything possible to avoid incurring any new charges at all until the consolidation is paid in full.

Which brings up another key point.

As you’re planning your strategy for how to make the most of a credit card balance transfer, figure out how you got into this situation in the first place. Be brutally honest with yourself, so you can avoid repeating the same mistakes. Otherwise, you’ll run the risk of digging yourself an even deeper hole out of which to climb.


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