Balance transfer credit cards are an alluring option: they let you pay off your credit card debt, often with no interest for over a year. However, balance transfer cards aren’t a guaranteed win despite their usefulness. There are specific steps to consider to make a balance transfer card work for you.
The good news? These steps aren’t tough to follow. Once you know what to do, it’s merely a matter of execution.
How To Make a Balance Transfer Card Work
Ready to kick your credit card debt to the curb? Here are four steps to make it happen.
1. Improve Your Credit Score
If you already have excellent credit, you can likely skip this step. But if you don’t have a stellar credit history, improving your credit score is the first step to mastering balance transfers. This is because balance transfer cards often require good to excellent credit. If your credit score is poor, you might have trouble getting approval. If you have poor credit, you can increase your credit score to improve your approval odds.
This can be somewhat of a catch-22, however. After all, credit utilization is one credit score factor: use too much of your available credit, and your score will drop. Thus, poor credit can preclude you from opening a card that will help you reduce those balances.
Still, another important credit score factor is payment history. Specifically, avoiding late payments is an important part of a healthy credit score. If you have missed payments in the past, make sure you always pay on time. One way to do this is to set up automatic payments on your credit card.
2. Minimize Fees
Another key to making balance transfer cards work is to minimize fees. The best balance transfer cards have no annual fees and a 0% introductory APR for purchases and balance transfers. Typically, the goal of opening a balance transfer card is to save money by avoiding interest charges. Of course, hefty fees run in direct opposition to that goal, so avoid them when possible.
It’s also important to pay attention to the details of the card’s fees. Credit cards usually have separate APRs for purchases and balance transfers. Make sure the card has a 0% APRs for not just purchases but also balance transfers. These cards usually have a balance transfer fee of 3% to 5%. There aren’t many balance transfer cards that waive balance transfer fees, even during the introductory period.
However, even with a one-time balance transfer fee, you’ll likely pay less than you would by incurring interest charges every month.
3. Pay It Off Quickly
Some balance transfer cards have generous introductory periods — often 18 months. While that might sound like a long time, it will go by quickly. And after the introductory period, balance transfer cards usually have APRs as high as, if not higher than, other credit cards. If you have a lot of credit card debt, be sure you can pay it off long before the balance transfer card’s introductory period ends.
4. Don’t Use It for Purchases (at First)
Related to the previous point, it’s a good idea to avoid using balance transfer cards for purchases — at least at until the card is paid off. If you use it for purchases during the introductory period, it might be tougher to pay the card off before the 0% APR ends. If you are opening a balance transfer card to avoid interest charges, the last thing you want is to accrue even more interest.
Do You Need a Balance Transfer?
Balance transfer cards can save you a lot of money, making them well worth considering. If you can pay the balance off quickly, you can potentially save hundreds or even thousands. But not everyone can pay off thousands of dollars in credit card debt quickly. If your balances would take two years or more to pay off, a balance transfer card may not be the best idea.
Of course, you can also transfer some (but not all) of your balance to a balance transfer card. Still, you should ensure that whatever amount you transfer is one you can pay off quickly. If you don’t have cash in hand ready to start attacking that credit card debt, it might be best to wait. That can also serve as a time to improve your credit score by avoiding late payments.
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