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How Does a Credit Card Balance Transfer Work?

February 8, 2022

a woman smiles from behind her laptop after easily completing a credit card balance transfer online
When you do a credit card balance transfer, you take the funds you owe on one or more of your credit cards and put the debt onto a new credit card. Depending on your new card limit, you may be able to transfer all your credit card debts to the new card, or just choose the part of your debt that has the highest interest rate and fees.

A credit card balance transfer is useful if you’re struggling to keep up with multiple payments on high-rate credit cards. Read on to learn how a credit card balance transfer works.

Credit Card Balance Transfer Steps

A credit card balance transfer follows a simple, well-established process. Once you’ve chosen your new credit card, a member services representative will be happy to guide you. 

Here are steps to consider: 

  1. Shop around with your local credit union and other financial institutions to find a credit card with a low introductory interest rate, and no fee, for balance transfers. This will ensure significant savings with the transaction.
  2. Get pre-approved for the new credit card and ensure that the annual percentage rate (APR) you’ll get with the new card is lower than what you’re paying for your existing cards.
  3. Tell your new credit card issuer that you want to use the new card to do a balance transfer, then give them all the details of your old card(s).
  4. Your new credit card issuer may transfer funds directly to your old credit card companies to pay off your balance(s) or issue a check so you can pay off the debt yourself.  
  5. You start making monthly payments on the total new balance that has been transferred to your new, lower interest credit card.

How a Credit Card Balance Transfer Can Help You

Credit card balance transfers are a popular option when you find yourself juggling too many credit cards and you see that most of your monthly payment is being eaten up by interest. 

Advantages of a credit card balance transfer may include:

  • You can have one monthly payment instead of many – at the very least, you’ll have fewer payments than before.
  • You’ll have the chance to pay off a significant chunk of your debt during the low-interest introductory period, if available.
  • After the introductory period, you may be able to keep a lower APR than your existing cards so more of your payment will go toward the balance and less toward interest.
  • You’ll find it easier to manage your debt so you’ll always pay on time, and this will help get your credit score in shape. 
  • Paying down your debt and having more available credit will also help boost your credit score. 

What to Consider Before Your Credit Card Balance Transfer

A credit card balance transfer is designed to work in your favor. Just be sure to shop around and compare numbers to make sure you get the most out of the transfer.

Here’s a checklist of what to do before your balance transfer:

  • Make sure your new credit card comes with a special introductory rate, which can help you save a significant amount of money in the introductory period (typically the first six months).  
  • Confirm that the credit card has no balance transfer fee.
  • Check that the low introductory rate applies to both your balance transfer and any new purchases you make in that time. Keep in mind you should aim to keep purchases to a minimum after the transfer until you’ve paid down your balance.
  • Find out what the APR will be after the introductory period, and be sure it’s lower than what you’re paying with your existing cards. You don’t want to make a switch and end up paying the same rate as before.
  • Depending on who issues your new credit card, your credit score may determine your APR or approval. If your score isn’t ideal at the moment, you could explore ways to improve your credit before you apply for your new card.
  • Look at the balance on your existing credit card(s) and decide how much debt you want to transfer to the new card.
  • Make sure the limit on your new credit card is high enough to accommodate the transfer, while still leaving a good ratio of available credit. This can be another way to help improve your credit score.

Still Have Questions about Balance Transfers?

If you’re not sure whether a credit card balance transfer is right for you, you can always reach out to a member services representative at your credit union for some helpful advice. Be sure to have the balance information of all your credit cards on hand so you can be prepared to answer questions and choose the best path.

You can be assured a credit card balance transfer is a great way to consolidate debt so your monthly payments are more manageable and you can get debt-free faster. Click below to find out more! 

The Benefits of Consolidating Debt Into One Payment

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