Editorial Policy

The right way to transfer your card’s balance

Miranda Marquit

February 18, 2015

Maybe you charged one too big-ticket items. Or perhaps the balances on your cards have ballooned for other reasons. Either way, one thing is clear: Now is a good time to take a look at 0 percent balance-transfer offers.

According to 2015 data from CreditCards.com, balance transfer offers are more generous right now, and that means you can take advantage of the ability to consolidate credit card debt with a 0 percent APR offer and pay down principal faster. Add to that, you will pay no interest if you pay down before the deal ends.

But, there are some things you need to know before applying for a balance transfer card:

What is the balance transfer fee?

While you might not pay monthly interest on your balance once it’s transferred, the balance transfer fee can set you back. “Banks commonly charge between 3 percent and 5 percent of the transferred balance,” says financial coach Kate Horrell. “Some banks may waive that fee for special promotions.” That fee is added to the amount of the balance transfer.

“If you do take a balance transfer offer with an associated fee, be sure that what you save from the lower interest rate outweighs the cost of the initial balance transfer fee,” says Randy Hopper, the vice president of credit cards at Navy Federal Credit Union.

Know when the deal ends

A 0 percent APR for balance transfers is good only for a limited period of time, usually between six and 21 months. The best approach to consolidating high-interest debt with a balance transfer card is to plan to pay off the entire balance before the introductory period ends, says Hopper.

“Card debt tends to be very costly due to high interest fees, so it may be worth your time to analyze how you racked up your debt.”
— Randy Hopper, Navy Federal Credit Union

Horrell advises consumers to be aware of the following detrimental interest rate practices:

  • Retroactive interest: Some issuers will charge retroactive interest if the entire balance isn’t paid off during the introductory period.
  • Sudden end to promotional rate: Find out what actions can trigger an early end to the 0 percent introductory period. A late payment — even if you are one day late — might signal the sudden end to your deal, destroying the benefit of your balance transfer.
  • Separate sub-accounts: If your current card offers a low-rate balance transfer deal, find out if your transferred balance will be kept in a separate sub-account. Your balance transfer rate, and that portion of your payment, should be figured separately from your “regular” purchase rate.

Many balance transfer cards apply higher “regular” rates when the introductory period is over. Rather than charging a 19.99 percent APR, for example, the balance transfer card might have a 22.99 percent APR. If you haven’t paid off the balance, that high rate can set you back in your debt repayment efforts.

Other fine print

“Read the fine print of the offer to make sure it’s right for you,” says Hopper. Find out from the issuer if you can transfer your entire balance, or whether the card issuer will do a partial balance transfer.

Many issuers will allow you to transfer balances after you have been approved for a card, but you need to initiate the transfer within 60 or 90 days of opening your account.

The Credit CARD Act requires issuers to apply your payment to the balance with the highest interest rate first. This means that, on a card with a purchase rate that is different from the 0 percent APR, most of your payment will reduce that high-interest debt first. However, the CARD Act has a loophole. The issuer can allocate the minimum balance to any debt. Many issuers put it directly toward the lowest rate balance so that they can keep collecting on your higher-rate debt. If you are trying to pay debt down faster, paying only the minimum won’t help, plus making purchases with your new balance transfer card defeats the purpose of debt reduction.

Change your habits

Once you transfer your balances, Hopper recommends that you take an honest look at your finances. First off, pay off your debt as soon as possible. Look for creative ways to pay down your debt, such as a funky weekend job or selling unwanted items online.

Also: “Card debt tends to be very costly due to high interest fees, so it may be worth your time to analyze how you racked up your debt,” Hopper says.

Too often, consumers transfer balances and view their old cards as “freed up” for more spending. This leads to even more debt down the road. Once you consolidate card debt with a balance transfer, you need to address any underlying problems and make changes that ensure this never happens again. This means learning to build a budget and establishing savings for the unexpected.

The trick is understanding that little luxuries such as cable TV can be canceled, and even saving $50 a month adds up quickly. You can dramatically increase savings by putting windfalls such as tax refunds or bonuses into the kitty.

Also, once your debt is cleared away, change how you treat your cards, says Hopper.

“Learn from your debt and strive to pay down your balance in full [each month] moving forward,” he says.