8 Smart Ways to Maximize a Balance Transfer

Get started by defining your goals and priorities. Do you want to focus on saving more for retirement or increasing your credit score? Or maybe something different? From there, you can craft your budget to align with your goals and develop a strategy to get you there faster.

 

One debt management tool that can be useful for anyone looking to eliminate credit card interest fees is a balance transfer. Start by finding a credit card with a lower interest rate than your current card, then transfer your balance (or a portion of it) to the new card.

 

The idea is that the transferred balance on the new credit card will accrue low or no interest during an introductory period—usually anywhere from 6 to 24 months. After that, the interest rate will increase to the standard rate. Save the most money by paying off the balance before the introductory period comes to an end, or be prepared to pay interest on the remaining debt.

 

You may even find a balance transfer offer that pays you! Some credit card issuers or financial institutions run promotions offering a cash back bonus—usually around 3% of the total balance you transfer.

 

Here are eight tips to make the most of your balance transfer:

 

1. Know your credit score.

   It’s a good idea to know where you stand before applying for a new credit card. A good or excellent credit score is typically required to get the best terms—like low or no interest. Use Mountain America Credit Union's Credit Score Plus to review your credit score and your full credit report.

    

   Applying for a balance transfer doesn’t affect your credit score directly. Credit-scoring companies don’t use balance transfers to calculate your score, nor are they recorded on credit reports.
    

2. Decide how much you want to transfer.

   There are a couple of factors you should consider before you make this decision. First, you may not qualify for a credit limit high enough to transfer your entire balance. Second, even if you qualify, you may not want to transfer that much. A partial transfer may be a better strategy unless you’re confident you can pay off the balance in full before the introductory period ends.
    

3. Make a payoff plan.

   Balance transfer credit cards are good for a specific purpose and need a proper exit strategy. Use a credit card payoff calculator to estimate how long it will take to pay off the balance before the higher interest rate begins. The calculator can also help you figure out how much you can save if you have a specific monthly payment in mind. To determine the right transfer amount for you, decide the monthly payment you can comfortably afford. Multiply that amount by the number of months you have in your introductory period (before the interest rate increases). This is the total amount you can afford to transfer.
    

4. Be aware of balance transfer fees.

   The point of a balance transfer is to help you save money by giving you a chance to pay off your balance at a lower interest rate. Before you choose a specific credit card, be sure to compare the costs. You don't want to offset the possible savings by paying unnecessary fees, like annual fees or transfer fees.
    

5. Shop around for free balance transfer offers.

   Balance transfer offers, in general, are fairly easy to come by. However, finding one that doesn’t charge a transfer fee is not always so easy. Keep an eye out for perks like 0% interest and cash back bonus offers. This is where the credit card issuer pays you to transfer your balance.

    

   Finding the best balance transfer deal for you is about more than just an interest rate. When choosing a new credit card, it’s important to compare all the terms to make sure you’re actually saving as much as you think. It can be easy to fall for a promotion based solely on the advertised interest rate. Then, once you’ve gotten the credit card, you find out there are additional fees or rate hikes you weren’t aware of—all of which eat away at the savings you were expecting. Use the credit card payoff calculator to compare offers.
    

6. Understand how to leverage a balance transfer.

   The most obvious way to use a balance transfer, of course, is as a debt management tool. However, that’s not the only way. It can also be used to save money. Transferring a high-interest balance to a low- or no-interest credit card can noticeably reduce the amount it takes to pay off your debt. Just make sure you don’t use it as an excuse to spend more and run up the balance on other credit cards.
    

7. Don’t close your original credit card account.

   Even if you don’t plan to use the credit card that you transferred a balance from, don’t close it. Having that available credit helps your utilization rate stay low which, in turn, helps your credit score go up.
    

8. Don’t make new purchases with your balance transfer credit card.

   So, now you have this great credit card that has low or no interest, right? Why not pick up a few things you’ve been wanting and save on the interest? The only way this strategy works is if you understand that the goal is to pay off the credit card before the introductory period comes to an end. More purchases will just make that goal harder to achieve. And, if you don’t pay off those purchases in time, whatever you have left could be subject to finance charges and interest fees, quickly eating up any savings you scored with the balance transfer in the first place.

 

Looking for a balance transfer to kick off your new budget strategy and get you out from under mounting interest fees? Talk with Mountain America. We’d be happy to help you understand if this debt management tool is right for you!