How to Reduce Debt Using a Balance Transfer

Using a balance transfer might be a good way to reduce your debt. Some credit card companies offer a low or 0% introductory APR for a limited amount of time, which will allow you to contribute more to your debt. Find a credit card to transfer your balance to and then identify which debts you want to transfer. Remember to use all money available to pay down your debt as soon as possible. After the promotional period ends, you will be charged interest again on your debt.

EditSteps

EditFinding Cards with a Low APR

1. Check your current cards. You might have a credit card that already offers balance transfers. Often, the bank will send you something in the mail letting you know you can make a balance transfer.
   
   • Alternately, you should look at your online account and check. There may be a link for “balance transfer” or “consolidate debt.” If you don’t see anything, call and ask a customer service representative.
   • Pay attention to whether a current card is already carrying a balance. For example, you might have a $3,000 balance on card A, which you want to transfer to card B. However, card B already has a $2,000 balance. If you make the transfer, then the minimum payment amount will go to the amount with the lower APR.^[1] Meanwhile, the original $2,000 balance continues to accrue interest at 14.99%.
   • In the above situation, you might want to make a balance transfer to a new card.
2. Search for credit cards online. There are many websites where you can compare credit cards. Remember that you can’t transfer a balance between cards with the same bank.^[2] Accordingly, look for cards offered by a different bank. Use the following comparison websites:^[3]
   
   • Bankrate.com
   • CardHub.com
   • CreditCards.com
   • CreditKarma.com
   • NerdWallet.com
3. Compare terms. You want to get a card that has the most favorable terms so that you can pay off your debt as fast as possible. Consider the following terms when comparing credit cards:
   
   • Transfer rate. Many cards offer a 0% APR for a certain amount of time (such as 12-18 months). The longer this promotional period, the better. You can save thousands of dollars in interest depending on your balance.^[4]
   • Transfer fee. Most cards will charge a certain amount, such as 3-5% of the total balance amount.^[5] If you transfer $10,000, then a $300-500 fee will be added on top.
   • Transfer window. Some cards will give you only so much time to request the balance transfer.
   • Post-promotion APR. Find out what happens if you can’t pay the entire balance off during the promotional period. Generally, banks will charge you interest only on the remaining balance. However, you don’t want a card that retroactively applies interest against the entire initial transfer.
4. Check your credit score. It’s easiest to get a credit card for a balance transfer if you have a credit score of 680 or higher.^[6] If your score is lower, you might have fewer options or you might not be able to get a card at all.
   
   • You can find your credit score by using a credit card service. Look online. Some companies will provide your score for free.
   • You can also check with a credit counselor or HUD-approved housing counselor, who can typically get your credit score for free.^[7]
   • Finally, you can also buy your score from one of the credit reporting agencies—Experian, Equifax, or TransUnion. You might also buy your FICO score from myfico.com.
5. Apply for the card. You can apply for your card over the phone, online, or using a paper application. In any event, you’ll be asked for some personal information, such as the following:^[8]
   
   • legal name
   • birth date
   • home address
   • contact information (such as phone number and email address)
   • current and previous employers
   • annual income
   • information on other credit cards
   • Social Security Number

EditTransferring Your Debts

1. List your debts. You might not be able to transfer all of your debts to a new card. For example, the new card might have a debt limit of $5,000. If you have $25,000 in total debt, you’ll need to identify which debts to transfer. List the debts and include the following information:^[9]
   
   • total balance
   • interest rate
   • any penalties or fees that are assessed
2. Choose which debts to transfer. Generally, you should transfer your highest-interest debts to the new card. If you have multiple credit card debts, try to move as much of the balance with the highest interest rate.
   
   • For example, your new card might have a $5,000 limit. You have two debts: $3,000 and $6,000. The card with the $3,000 balance has an APR of 29.99% and the other card has an APR of 13.99%. You can use a balance transfer to cover all of the $3,000 balance and then some of the $6,000.
   • Remember that balance transfer fees count toward the maximum you can transfer.
3. Transfer when you open the card. With some cards, you can enter in the account number and the amount you want to transfer when you open the card. This can make transferring the balance very easy.^[10]
   
4. Make a transfer online. Alternately, you might need to go online and sign into your online banking account. Look for a link for “balance transfer” or “promotions.”
   
   • Enter the account number of the credit card with the balance. Then enter the amount you want to transfer. You may also need to provide the payment address for the credit card you are paying off.^[11]
5. Transfer using an access check. Access checks look like personal checks. However, they are tied to your credit card. You can write out a check to the credit card company for the amount you want to transfer.^[12]
   
   • Be careful and read the fine print. Not all access checks are the same. Some banks will let you use them for balance transfers, but others might consider any use of the access check to be a cash advance. Cash advances have huge interest rates, so make sure the access check will count as a balance transfer.
   • Call up and ask questions, if necessary.
6. Deposit money directly into the bank. Some cards allow you to deposit money directly into your bank account from the credit card. Read the card’s terms to see if you can deposit money at the promotional interest rate. Some banks might classify the deposit as a “cash advance.”^[13]
   
   • A direct deposit frees up money to pay off all kinds of debts, not necessarily only other credit card debt. For example, you might owe your mother $1,000. You can deposit this amount of money into your checking account and then cut a personal check to pay back your mother.
7. Stay current on your payments. It generally can take a few days for the transfer to go through. If you haven’t seen it go through within 10 days, then call the credit card company. In the meantime, don’t miss payments.
   
   • For example, your balance transfer might not go through by the time your next payment is due on a card. If not, remember to make payment so you aren’t delinquent.

EditPaying Off Your Debts Faster

1. Make timely payments. If you’re 60 days late on your payment, then the bank might end the promotional period early.^[14] For this reason, you need to remember to pay your bills on time.
   
2. Commit to paying off the balance before the promotional period ends. Your introductory interest rate won’t last forever. Accordingly, try to pay off the balance before you reach the end of the promotional rate period. If you aren’t being charged interest, it should be easy to calculate how much you need to pay each month.
   
   • For example, say your card has a 12-month promotional period at 0%. You transfer $3,000 to the card. Over 12 months, you’ll need to pay about $250 a month (plus the balance transfer fee).
   • If you can’t pay the entire balance in time, you should typically be charged only interest on the remaining balance. However, read your card’s terms.
3. Stop spending. You will only go deeper into debt if you continue to spend.^[15] After seeing their monthly payments decrease, some people use the extra money for luxuries. Instead, you need to direct this extra money toward paying down your debt more quickly.
   
   • To control spending, cut up your credit cards or freeze them in ice. Doing so will prevent you from using the cards.
   • In particular, you shouldn’t use the card with the balance. Instead, store the card away.^[16]
   • Don’t close your old accounts after you move the balances off them. Doing so will hurt your credit score.

EditSources and Citations

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