Consumer debt in the U.S. has skyrocketed to a high of more than $4.1 trillion. Of that large number, credit card debt makes up about a fifth of it. Anyone whose household is included in that figure might consider taking advantage of a balance transfer credit card to pay off the debt at a faster rate.
Table of Contents
Is It a Good Idea To Do a Balance Transfer?
If you have quite a bit of credit card debt built up, then generally it is a good idea to do a balance transfer. However there are still some considerations and risks to keep in mind when doing so.
A balance transfer consolidates debt while giving you some breathing room on the amount of interest you’d be paying on the principal. The organizational benefit, if nothing else, might be reason enough to execute a balance transfer if you’re working with multiple sources of debt.
Do Balance Transfers Affect Your Credit Score?
The short answer is yes, balance transfers can affect your credit score. The actual act of transferring doesn’t affect it but the other factors involving the process, such as opening up a new credit card, can affect it.
Because a balance transfer only consolidates debt, your amount of outstanding credit will not change but your ability to pay it off faster will. Technically, this will allow you to pay your debt off at a lesser interest rate, which will have a positive effect on your score. Also, your credit score is measured by the number of accounts open, or your utilization rate. So, keeping your old account and opening a new one with the same mount of debt is improving your utilization.
How Does a Balance Transfer Work?
Balance transfers are relatively straightforward but require both planning and patience on your part. Here’s how to do a credit card balance transfer:
1. Assess Your Financial Situation
The first thing to consider is whether or not a balance transfer will actually benefit you. Sure, it can help you pay off your debt faster, but if you’re not getting lower rates or % introductory APRs for a specified time period then it isn’t worth it.
2. Choose a Balance Transfer Card
Once you’ve determined that rolling your credit card balance onto a new balance transfer card is best, you’ll need to select a card. To choose the right card, ask the following questions before committing to transferring your credit card balance:
- What is the introductory offer and how long is it in effect? Remember you want a low to 0% APR with a long term to give you time to pay off your debt.
- What is the APR after the introductory offer has expired? You don’t want your new card putting you back into the same situation you were in with your old card.
- Are there any balance transfer fees? This is important because it is the seemingly small fees are the ones that will end up creeping up on you.
- What is the credit limit? Know what the balance transfer card’s credit limit is so you know whether it is enough to cover the balance you owe on your high-interest card.
3. Apply For the Credit Card Balance Transfer
Select the balance transfer offer you’d like to accept and fill out the requested information. To have the lender determine your creditworthiness, you’ll typically need to provide your:
- Social Security number
- Date of birth
- Income information
Next, you’ll need to let the company know:
- Which credit card you want to pay off
- Your account number
- The total amount you’d like to transfer
After you’ve went through these steps, all you have to do now is wait to be approved for your credit card. With that, credit card companies and issuers will look at your credit score. Generally a credit score of 670 or higher is preferred, according to Experian, but there are exceptions.
Individuals with lower scores can also look into secured credit cards, which are geared specifically toward people with poor credit. Secured cards, which require a refundable deposit, carry higher APRs than regular credit cards. Alternatively, you can see if the card issuer will accept a co-signer.
4. Wait For Balance Transfer Approval
You might be wandering, how long does a balance take to transfer to my new card? Well once you send your application in for a new card, it will take two weeks for approval and for the balance transfer to be complete. During this crucial time, you should try your best to protect your credit score and avoid late fees.
To make sure you make complete use of your balance transfer, take a look at your budget a create a payment plan that works for you. You should consider creating a plan that allows you to pay off your debt before your introductory APR ends. For more posts like this check out our list of bank guides and credit card bonuses!