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Credit Card Balance Transfer Tips
If you’re trying to manage debt, credit card balance transfers can be a good tool. Strategically moving debt from one or more credit cards to another could create a clear path for paying off your balance faster.
However, knowing some of the best practices for handling a balance transfer is important to making the most of this financial tool. Here’s an introduction to balance transfer credit cards.
What is a balance transfer credit card?
A balance transfer credit card can help you consolidate and manage your existing debt. It allows you to move outstanding balances from one or more credit cards to another card, typically with a lower introductory or promotional Annual Percentage Rate (APR).
This means that instead of juggling multiple credit card payments with varying interest rates, you can combine your debt onto a single card.
Balance transfer credit cards are often used by those looking to get out of credit card debt. If you’re paying high interest rates on one or more credit cards, transferring your balances to a card with a lower APR on balance transfers can reduce the amount you potentially pay in interest over time.
To make this even more worthwhile, balance transfer cards often include a promotional offer that allows you to pay no interest for many months. During this introductory period, every dollar you pay goes directly toward your principal balance, which helps you pay it off faster.
Search for a balance transfer credit card that works for you
Not all balance transfer credit cards are created equal, so it’s important to compare options and features before making your decision.
In particular, balance transfer cards with no interest charged on the balance transfer during the introductory period can give you breathing room to pay off your balance without additional interest charges. Here are some other features to look for:
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Low or 0% APR during the introductory period
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The longest introductory period
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The lowest interest rate after the introductory period ends
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The lowest balance transfer fee
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A total balance transfer amount that accommodates your needs
Shopping around for the best balance transfer offer could save you money. For example, it might not be advantageous to get a card with a low credit limit that enables you to transfer only part of your debt. That would still leave you with other high-interest balances to manage.
Understand terms and conditions of your new balance transfer credit card
Before committing to a new card, make sure you fully understand its terms and conditions. That should help you figure out whether the balance transfer can benefit you.
You'll need to know the APR on balance transfers during the introductory period and after it expires. The length of the introductory period also is very important. This information can help you with budgeting your repayment plan.
Additionally, these cards typically include a balance transfer fee — often around 3% to 5% of the amount transferred. So, if you transferred $5,000 from other cards as an example, the fee could be $150 to $250.
Determine a repayment plan
People who obtain this type of card may want to set their budgeting goal as paying off all the debt before the introductory period ends.
For example, if you have a new credit card with a 15-month introductory period at 0% introductory APR and transfer $5,000 from another credit card to the new account, you can calculate what your monthly payment would need to be in order to pay off the debt within the 15-month introductory time period to avoid paying any additional interest. This is assuming you make no new transactions during this time and have no other existing balance on the new credit card account.
Let's say you want to transfer balances from three other credit cards that total $5,000 to this new account. You could compare what you are paying now on those three accounts to this possible new payment. This could give you some idea of whether you can afford that new payment amount.
If you think you won't be able to pay off the full amount before the introductory APR on balance transfers ends, you can do a little more math. Pick a monthly payment that you can afford and multiply that by the months in the introductory period — 15 in this example. Subtract that amount from the initial balance. That’s the amount you’ll have to pay off with the new, higher interest rate once the introductory 0% APR for balance transfers ends, assuming you have no other balances and make no new transactions. If you think you won’t be able to pay off the full amount before the introductory APR on the balance transfer ends, make sure you check your specific card details to understand how much you’ll have left to pay at the new higher interest rate and what your minimum monthly payment will be.
More to consider during repayment
While you're paying off a balance transfer credit card, it might help to cut back on any non-essential spending so you can pay off the balance during the introductory period. Every dollar you save can go directly toward paying down your credit card debt while you are paying no interest or interest based on a low introductory APR on balance transfers.
You also could try to avoid accumulating new debt during this time. You might be tempted to use your credit cards that had their balances transferred to a new balance transfer credit card, for additional purchases or cash advances but this could undermine your efforts to pay off debt. A disciplined approach could help to keep you on track to meet your repayment goals and save you money in the long run.
Make payments on time
To use a balance transfer card properly, you must make at least your minimum monthly payments on time. This is good for your credit score, helping to improve your long-term financial health.
Late payments could result in penalties, including losing your low APR on balance transfers. That could ruin all your planning by increasing your monthly payment. Setting up automatic payments could help you avoid missed or late payments.
Credit Cards offered at TD Bank
These credit card balance transfer tips could help you manage your finances and pay off your debt faster.
Explore the TD Bank credit cards with balance transfer offers.