If your goal is to pay off your credit card debt, but you have a high interest rate, or multiple cards with balances, a balance transfer may be the ideal solution. You’ll need a decent FICO credit score to qualify, of course.
According to Experian, here are the credit score ranges:
Check your credit scores to make sure that you rank in the upper-600s to qualify for a high-quality credit card with a good introductory balance transfer deal.
If your score needs some work, check your credit files for free at www.annualcreditreport.com. The biggest score-reducing factors are mistakes in your credit report, late payments, and accounts in collections.
If you can afford to do so, bring your accounts current. Ask the credit reporting agencies to fix any mistakes you see, as well. Changes will take at least a month to reflect in your credit score.
Make a list of all your credit cards, the balance as of today on each, your monthly minimum payment, and the interest rate on each card.
Enter the information into a chart like this:
|Current balance||Monthly minimum payment||Interest rate|
If you can get approved for a balance transfer card with a 0% introductory offer and zero balance transfer fees with a credit limit that covers all your current credit card debt, do so. If that isn’t an option, prioritize paying off the credit card with the highest interest rate with the balance transfer card.
Successfully paying off your credit card balances with this method depends on your ability to locate and qualify for a good balance transfer credit card.
Promotional interest rates must be at least six months, but your goal is to find a credit card with the longest possible introductory rate on balance transfers. 0% interest is ideal. Anything below 3% will save you money in the long run, though.
Look for a card with zero balance transfer fees. If there aren’t any available, plan to pay between 3% and 5% of the amount of debt you want to transfer to the new card.
If you have $4,500 in total credit card debt with an interest rate of 28%, and you want to pay off the debt in 18 months, you’ll have to make monthly payments of $309. If you want to pay off the debt in 6 months, your monthly payment will be $812.
|Note: these are just examples. Credit card offers are always changing.||Minimum FICO credit score||Introductory period/how many months you have to pay off the debt||Balance transfer interest rate||Interest rate after intro period||Interest/fees||Additional perks||Monthly payment|
|Wells Fargo Platinum Visa Card||670+||18 months||0%||17.74% – 27.24%||$0 annual fee
$0 balance transfer fee
|0% interest on purchases for first 18 months; free cellphone insurance||270|
|Aspire Platinum Mastercard||580+||6 months||0%||10.4% – 18%||$0 annual fee
$0 balance transfer fee
|0% interest on purchases for first 6 months||772|
|Discover it Cash Back||670+||14 months||0%||14.24% – 25.24%||$0 annual fee
3% balance transfer fee ($135)
|5% cashback on rotating categories; 0% interest on purchases for first 6 months||331|
This is how much money you’ll save by paying off this $4,500 debt with a balance transfer card:
|Monthly payments at 28% interest||Monthly payments at 0% interest||Total savings|
When choosing a balance transfer card, keep in mind that you may not be able to transfer balances between two cards issued by the same bank or financial institution.
So, if you have a Capital One Venture One rewards card with a $3,500 balance and you pay 23% interest, the Capital One Quicksilver Rewards card with a 0% introductory APR on balance transfers for 15 months may look like a great deal. You could lower your payments over those 15 months from $270 per month to $233.33 per month.
Capital One will not allow you to transfer a balance from one of their cards to another, though. In this situation, you’ll be better off to move your debt to the Chase Freedom Unlimited card. It also has a 0% interest rate on balance transfers and 1.5% unlimited cash back on purchases.
Every credit card has a list of disclosures that they must provide to consumers. You can find them on the card’s website.
Before you fill out the application, take some time to read through the terms. It’s important that you understand how long you’ll get the introductory APR on a balance transfer card.
For example, the Discover it Cash Back credit card offers 0% APR for 14 months. Their disclosures state, “ Intro purchase APR is 0% for 14 months from date of account opening ; then the standard purchase APR applies. Intro Balance Transfer APR is 0% for 14 months from date of first transfer, for transfers under this offer that post to your account by June 10, 2019 ; then the standard purchase APR applies. Standard purchase APR: 14.24% variable to 25.24% variable, based on your creditworthiness. Cash APR: 27.24% variable. Variable APRs will vary with the market based on the Prime Rate. Minimum interest charge: If you are charged interest, the charge will be no less than $.50. Cash advance fee: Either $10 or 5% of the amount of each cash advance, whichever is greater. Balance transfer fee: 3% of the amount of each transfer . Annual Fee: None. Rates as of February 28, 2019.”
So, if you want to transfer a total of $4,500 from several cards to your new Discover it Cash Back credit card, you’ll have 14 months to pay off the balance (that’s 14 monthly payments of $322). It’s a great deal if you have high-interest credit cards that you’ve struggled to pay down. Toward the end of Discover’s disclosures, they state that there’s a 3% balance transfer fee. This fee adds $125 to your $4,500 debt immediately, bringing your monthly payments to $331 per month for 14 months.
You also need to make sure you get all your transfers completed before the June 10, 2019 deadline listed in this offer.
Transferring your balance from one card to another should be a simple process that you can complete online. For example, with Discover, you’ll need your account numbers from the cards you want to pay off. Enter those numbers and Discover takes over, paying off the balances as directed.
Fortunately, if you run into problems or can’t figure out how to make it work, every credit card issuer offers a phone number to call so you can get help from the experts.
As long as you are cleaning up your financial life by paying off high-interest credit cards, you should also take the process a step further and make some decisions about which cards to keep and which to cancel.
Your FICO credit score may dip if you cancel credit card accounts, so proceed with caution. Cancelling cards can drive up your credit utilization ratio, while opening new revolving credit accounts improve it. Your credit utilization ratio makes up 30% of your total FICO credit score.
So, if you have three credit cards with credit lines of $5,000, $14,000, and $3,500 and the balances on those cards are $4,000, $9,000, and $2,000, your credit utilization ratio is 67%.
This is not a great credit utilization ratio. It’s likely to have a negative effect on a FICO credit score.
If you open a new balance transfer credit card account with a credit limit of $25,000, your credit utilization ratio improves.
This is a much better credit utilization ratio. The goal is 30%, so you are well on your way. It will improve as you pay down the balance on the new credit card.
If you want to cancel the old cards, your credit utilization ratio will take a hit, though.
When you cancel the account with $14,000 of available credit, your new credit utilization ratio looks like this:
As you pay down your balance, your credit utilization ratio will improve. Your FICO credit score may temporarily dip if you cancel open lines of credit.
Some cards are too terrible to keep, though. Here are some of the worst credit cards available:
With a $95 processing fee, charged before opening the account, a minimum annual fee of $75, and an interest rate that bumps the legal limit in every state, this card is one to pay off and cancel as soon as possible.
If you have this card more than one year, you’ll get hit with a monthly fee between $6.35 and $10.40 plus a 25% fee for credit limit increases.
This 24k gold-plated credit card has a $995 annual fee. If that didn’t scare you off, and you ended up getting this card you may have realized that it’s nearly impossible to get your $995 annual fee back with rewards. You’ll earn the equivalent of 2% back on your purchases in the form of airfare and statement credits, but even so, this is another card to pay off and cancel right away.
So, you needed new tires, and you thought it would be smart to take a 0% financing deal for six months. The problem with this card is that if you miss one payment by one day or have any balance at all at the end of the six months, Goodyear goes back in time and charges you six months worth of 30.74% interest on your purchase.
If you happen to have this card right now and there’s a balance, pay it off and cancel it just to be safe even if it’s still in the six-month introductory period.
Nearly every brand, national chain store, and shop in the mall has their own store-branded credit card. You can only use it in that store or stores that fall under the brand’s umbrella. Interest rates are 28%+, depending on your state’s legal limit, and there’s usually some sort of loyalty program that helps you earn points or coupons.
While the introductory offer may be tempting, the interest rates and terms on these cards aren’t a good deal. You’d be much better off using one all-purpose credit card for all your purchases that has a good cash-back program than juggling multiple store cards.
If you have store cards with a balance, your interest payments will make it difficult to pay them off quickly. Make it a priority to rid your wallet of these cards as soon as possible. Having store-branded credit cards with balances is a great reason to get a balance transfer card. As soon as you have a zero balance, cancel the account.
Transferring credit card balances is a good way to reduce the interest you’ll pay on the debt, but it isn’t a quick fix. While you pay down your debt, don’t use your old cards. Doing so defeats the purpose of transferring the balances.