Editorial Policy

How to make a balance transfer work for you

Erica Sandberg

March 20, 2015

QHi Erica,

Can I make a balance transfer to a regular credit card from a Lowe's card? The interest is high; my balance is $4,277. If I did do it, would I need to close my Lowe's card or can I keep it open?  –Owen

ADear Owen,

Yes, presuming you qualify for a card that offers a balance transfer deal, you can shift what you owe (or at least some of it) to the new account. And no, you would not be required to close the original card.

Many card companies offer balance transfer cards; learn more by clicking on the “Balance Transfers” link to the left of this column. As you can see, the terms for each range quite a bit. Here are the terms and conditions you should pay attention to with a balance transfer deal:

Promotional APR. Almost all credit issuers are lowering their balance-transfer promotional APR to zero these days, but it can be 3 percent or even higher. Lower, of course, is preferable.

Balance transfer fee. Most balance transfer cards charge a fee of between 3 and 5 percent of the debt you move over. In your case, it would be somewhere around $128 to $171. A few, though, don't charge anything.Ask Erica

Length of promotion. The abnormally low APR for transferred balances can last from six months to well over a year.  Longer is better, because you'll have more time to repay the debt without any or much interest being added.

Post-promotional interest rates. Eventually, the APR will increase to a much higher one. These “real” rates vary tremendously by card and issuer. Some may be worse than what you have now, so be absolutely sure that you will delete most or all of the balance before the interest rate period kicks in.

Annual fee. Some have none; others do. Don't automatically discount the cards that do, because they may offer valuable benefits in the form of rewards programs.

Review as many of these offers as you can, then play with the numbers with a balance transfer calculator to see how much money you could save. For example:

Let's say your current account has a 22 percent APR. Transfer it to one that offers zero percent for the first 12 months, then 12.99 APR later. Assuming a 3 percent balance transfer fee, you'd save $813 in the first year alone! After that, you'd save $32 each subsequent month.

So what's the catch? First, most of the great offers require applicants to have a good credit rating, so check your credit scores before trying at MyFICO.com for about $20 each. If your numbers are low, say under 700 on a scale of 300-850, take action to bring them up. That might entail establishing a perfect payment pattern, which takes at least a year. If you have any collection accounts, satisfy them, especially if they're recent. Also, pay in full and on time each month going forward. Check your credit report for free at AnnualCreditReport.com to make sure there are no errors.

Another factor that will lower your score is owing too much money on your card in comparison to what you can borrow. Called your credit utilization ratio, you want to keep your balance on your cards as close to zero as possible, and under 30 percent of your available credit at the least. Have a high credit utilization ratio? Ask your credit issuers to increase the credit line. Alternately, reduce your debt. Try selling items online or taking an interesting side job.

If you apply for a new card, your credit utilization ratio will automatically decrease with the addition of a new credit line — as long as you keep the Lowe's card open.

Working on the assumption that you will be eligible for a balance transfer, make sure you never miss a due date. If you do, the super low rate will almost certainly expire, and you'll have paid that transfer fee for nothing.

And lastly, do not add debt to the old, yet now empty Lowe's account! You can use it to pay for all those tools and whatnots, but always send enough to cover the balance in full. Too many people who use balance transfers let the debt creep up again and then are stuck with two maxed out cards — and far fewer options for resolution.

Got a question for Erica? Send her an email.