7 Tips for Getting the Max Benefit From a Balance Transfer
A balance transfer credit card can be a great way to get out of paying hundreds of dollars on high interest rate credit card debt. Balance transfer cards have an introductory period where you won’t pay any interest on a balance you move from another credit card. If you’re considering a balance transfer to pay off some debt, here’s what you should know.
Get the longest promotional period you can qualify for.
The promotional period has to last at least six months, but you may be able to find a credit card with a much longer promotional period. A longer interest-free period gives you more time to pay off your balance before the interest kicks in.
Transfer the highest rate balance.
The balance with the highest APR is costing you the most money. Transfer as much of that balance as you to save more money. Your initial transfer request may be denied if the balance is higher than your credit limit. Once you know your credit limit, you can transfer up to your available credit. Make sure to continue making the minimum payment until the balance transfer is complete.
Know the payment you need to make to pay off your balance.
This will require some quick math, but it’s worth it. Start with your total outstanding balance. Add 3% to the balance for the balance transfer fee. Then divide by the number of months or billing cycles in the promotional period. The result is the payment you should make each month to get the full benefit of your balance transfer.
For example, if you have a $7,000 balance to pay off in 18 months, you’ll need to pay $401 each month, including the balance transfer fee.
Of course, paying more won’t hurt either since it means you’ll knock your balance out much faster.
Transfer multiple balances if you have enough available credit.
Most balance transfer credit cards apply the promotional rate to all the balances you transfer in the first 60 days. Once you find out your credit limit, you can transfer additional balances to save more money. Even transferring part of a balance can help you save on interest.
Don’t make any purchases or cash advances.
A bigger balance only means you’ll have to make large payments to knock out your balance. But that’s not the only reason to avoid transactions until your balance is repaid.
Your credit card issuer will split your monthly payments between balances with different interest rates. The minimum payment will go toward any balance the credit card issuer chooses. (Your credit card agreement will describe how the minimum payment is applied.) The remainder of your balance must go to the highest interest rate balance. This will typically be the cash advance balance, if you have one. That means your payments aren’t helping you avoid interest after all.
Avoid increasing balances on your other credit cards.
You’ll end up canceling out the interest savings you get from your balance transfer credit card. Plus, creating more debt makes it harder to make all your monthly payments.
Don’t miss a payment.
If you’re late on a payment to your balance transfer card, you could lose the promotional rate and the potential for interest savings.