If you’re looking to get rid of debt you owe on credit cards or personal loans, a balance transfer could help you pay down your debt while avoiding (or reducing) your interest charges. But it’s important to start with a plan.
What is a balance transfer credit card?
Balance transfer credit cards usually offer a low (even down to 0%) annual percentage rate (APR) introductory or promotional period period when you transfer an existing credit card or loan balance. You might need to open a new card to access that introductory period, or your current card issuer may offer a promotional period of low or 0% APR when you transfer to your existing card.
Read more: Need some help keeping your expenses in check? Spending buckets can help.
How does a balance transfer work?
Balance transfers are a great way to double down on paying off your credit card debt, but you should understand the steps before initiating the move.
1. Apply for a new balance transfer credit card or check if your current card issuer offers balance transfers
Do some research on what balance transfer cards are available to you. Make note of each card’s introductory interest rate and timeframe, the interest rate after that time passes, and other details. Once you’ve identified a card that works for you, submit an application.
Note: Submitting applications for new cards will result in a hard credit check, which could temporarily reduce your credit score.
You can also check if your existing card issuer offers balance transfers. Note that making payments on time and paying more than the minimum can help increase your chances of receiving card benefits, such as balance transfers. A higher credit score may also help you secure a longer promotional period.
2. Choose an amount to transfer
It might seem intuitive to move as much of your debt as possible from various accounts, but consider:
How your balance transfer fee will affect your overall balance
Whether you’ll be able to pay off your balance within the introductory APR period
The interest rate you’ll be charged after the initial low-interest period
Prioritizing accounts with the highest APR
With these factors in mind, create a debt plan for how much of your debt you’ll transfer — and a time-based repayment plan to get your balance down to $0.
3. Request a balance transfer
You may be able to request a transfer online or over the phone with your balance transfer card’s provider. Be ready with the amount that you would like to move and information about your current lender.
4. Pay off your balance
Stick to your plan and make all of your payments on time. Tools like spending buckets in Ally Bank's Spending Account can help you manage where your money is going and stay on-track with debt payments.
With a balance transfer, any new purchases may need to be paid off in full, so check with your card issuer before making new purchases. Avoid racking up any new debt, too, so you don't end up in the same place you started.
Balance transfers can be a great way to avoid high interest payments if you’re ready to aggressively pay down your debt.
How to choose a balance transfer credit card
When researching cards, focus on the length of the card’s introductory APR period. The longer the timeframe, the longer you have to pay off your outstanding balance.
You should also compare balance transfer fees, which are usually between 3 to 5 percent of the amount you’re moving. For example, if you transfer a $10,000 balance with a 3% fee, your new balance will be $10,300. The upfront cost might be worth it if a balance transfer card will help you avoid interest charges that exceed the fee.
How much money can you save with a balance transfer?
If you successfully pay off your balance during the introductory or promotional period, your only additional costs would be the balance transfer fee and interest at the lower APR.
You can use our credit card payoff calculator to compare payoff timelines for your existing cards compared to a balance transfer card you're considering.
Be aware that this payoff timeline is reflective of the best-case scenario where you stick to on-time payments and pay the full balance before interest kicks in.
Is a balance transfer right for you?
Balance transfers can be a great way to avoid high interest payments if you’re ready to aggressively pay down your debt. But if you’re unable to focus on repayment, it might be best to wait. Balance transfer cards can have even higher interest rates than other credit cards after the introductory period, so you should only use one once you’re ready.
