6 steps to a successful credit card balance transfer


A promotional offer to transfer your balances to a credit card with a lower annual percentage rate may seem like the solution to your debt problems. But before you make the jump to consolidate your debt onto a new credit card, it's vital to be aware of the fine print and potential pitfalls. Ignorance could turn out to be a very expensive mistake.

Mike Sullivan is spokesman for Take Charge America, a national nonprofit consumer credit counseling company based in Phoenix. He says balance transfers can be beneficial if done properly, but aren't always worth it. "The only real, solid, definable benefit from a balance transfer is you can save money over the long haul if you pay back the previous amount you owed and you pay it at a lower interest rate including all your costs," Sullivan says.

Here are six steps you should take to make sure you're on the winning side of a balance transfer:

1) Figure out why you're in debt. "The balance transfer itself is an indication you have too much debt, and if you do, transferring it somewhere else may save you a few dollars, but it may also be a sign you are in trouble and have a bigger issue," Sullivan says. "I often advise people to take care of underlying issue first." Meet with a credit counselor to create a budget and cut back on spending before transferring balances.

2) Beware uncapped balance transfer fees. "It used to be that there was a limited fee, such as 3 percent of the first $1,000, or it was waived completely," Sullivan says. Read the fine print closely and do the math to see if the transfer fee will wipe out any possible savings.

3) Avoid using the card for purchases or cash advances. Your goal in taking out a balance transfer card is to lower your debt, not add to it. Put new purchases on another card, and by all means, avoid cash advances. Our 2015 cash advance survey found the average cash advance interest rate was a punishing 23.53 percent.

4) Beware of the bait-and-switch element, as Sullivan calls it. This happens when you receive a balance transfer offer that you've been "preapproved" for, but when you submit the application, you find out you're actually eligible for less than your balance. Getting a preapproved offer is no guarantee; you can still be turned down or get approved for an amount smaller than your debt. "If you intend to transfer all balances to this card, you may still find yourself stuck with debt," Sullivan says. "And you just increased your credit limit significantly, which will have an immediate impact on your credit score. If you're about to buy a home or car or using credit for something else, you have to take that into account."

5) Shop around for the best rate. Sullivan says it's important to make sure you're getting the best rate you can. "Finding the right card is probably the best thing you can do. Teaser rates are fine, but I suggest going to websites and seeing which cards offer which rates. You may think that 9.9 percent APR is good, only to find out you qualify for 4.9 percent." Consider maintaining several credit card accounts. 

6) Destroy the old and new card. Closing the old credit card account probably isn't a good idea, unless you can't handle the temptation to spend. Because closing the account reduces your available credit, it may lower your credit score. Sullivan has an alternative suggestion: "Cut up the card instead." He also suggests destroying the physical card on the new account, so you won't be tempted to use it for purchases or cash advances (re-read tip No. 3) -- strictly use it to pay off the balance. "We see too many of those folks who just can't control their impulses," Sullivan says.

See related: Balance transfer calculator

Updated: March 16, 2016


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