4 Ways to Eliminate Debt Using a Balance Transfer

Looking for a better way to manage your finances this year? When you’re putting together your debt payoff plan, a balance transfer could be a powerful tool to help you get ahead.

What is a balance transfer?

A balance transfer lets you move debt from one credit card to another—usually a lower interest rate or cash bonus. Done strategically, such a move could help you pay down high-interest debt and save big on interest charges.

What are your options?

Balance transfer credit card promotions come in two major varieties—introductory APRs and cash bonuses.

• Introductory APRs—Some financial institutions offer low or even 0% annual percentage rate (APR) during a promotional period—usually the first six months to a year after you transfer a balance. If you take advantage of an introductory APR, make sure you keep track of when it will switch to a higher rate.

• Cash bonuses—Keep an eye out for cash bonuses, which are usually calculated as a percentage of the balance you transfer. You can apply that bonus directly to your balance to speed up your payoff.

Be aware that balance transfers can come with costs and limitations. You may have to pay a balance transfer fee—usually 3% to 5% of the total amount transferred—and if your new credit card has a low limit, you may not be able to move your full balance.

Helpful strategies to reach your debt-free goal

If a balance transfer fits, keep these benefits and strategies in mind to get the most from this smart money move:

1. Look for the longest low-interest period

   When choosing a balance transfer credit card, make sure to review the promotional period—the amount of time before the interest rate will go up. In your research, you’ll likely find promotional periods can vary from card to card. Most offers are from six to 12 months but may go up to 18 months. The longer you have a lower interest rate on your credit card, the better chance you have of paying off your total debt and maximizing your savings.

2. Do the math on fees vs. savings

   While moving your money to an account with low or no interest sounds great, it’s important to factor in any transfer fees into the equation. If what you are paying in fees outweighs the potential interest savings, it may not be worth it. After all, the goal is to eliminate debt, not add to it.

3. Strategize with a payoff plan

   Depending on the credit card you choose, devise a strategic payoff plan based on the number of months the lower interest rate will last. Use a credit card payoff calculator to map out how much you need to pay each month to clear your balance before the promo period ends. If you choose a cash-back balance transfer, think about applying that money immediately to your balance.

4. Keep paying your old card

   Balance transfers take at least a few days, sometimes a few weeks, to process. You’re still responsible for payments to your original credit card until the transfer is done or the balance is paid in full. Missing a payment can result in a late fee and negative mark on your credit report, so continue to make your payments on time until you confirm the balance transfer is complete.

Need help deciding if a balance transfer is right for you?

We are committed to helping you find ways to take control of your finances. If you need guidance on paying down your debt or have questions about whether a balance transfer can work for you, contact us online, in a branch or call our service center. Or if you'd prefer a more in-depth look at your financial picture, make an appointment with a financial guide. We’d love to help you move closer to a debt-free future.

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