If, like 48% of Americans, you’re dealing with high-interest debt, a balance transfer can be an effective strategy to help you get ahead on your payments. By moving an existing debt balance to a low-rate or promotional-rate credit card, you can free up breathing room and make real progress faster.
At Valley Credit Union, we often offer great terms on balance transfers for both new and existing cardholders. We’ve put together this guide to explain what balance transfers are, how to transfer credit card balance step by step, and when they’re a good idea.
Keep reading to learn more, and feel free to reach out to us with any specific questions you have!
Important Definitions
Before we explain what balance transfers are and how they work, there are a few key terms you need to understand first.
- Annual Percentage Rate (APR): This is the yearly cost of a loan, expressed as a percentage. It includes the loan’s interest rate and any related fees.
- Balance Transfer: The process of moving what you owe on one credit card or lender to another card with a lower interest rate, often to save on interest and pay off debt faster.
- Balance Transfer Credit Card: A credit card designed specifically to help you move higher-interest balances to a lower or zero interest rate for a limited promotional period. These cards often include features like 0% introductory APRs and low ongoing rates.
- Balance Transfer Fee: A fee some lenders charge to move your existing debt to a new card. This fee is usually a percentage of the transferred amount. Valley Credit Union does not charge this fee.
- Go-To Rate: The regular interest rate on a credit card that applies after a promotional or introductory period ends.
- Principal: The original amount you borrowed or still owe, not including interest.
- Promotional Rate: A temporary low or zero interest rate offered for a defined period. It gives you time to pay down your balance without accruing interest.
What is a balance transfer?
A balance transfer involves moving all or some of your high-interest debt to a credit card with a better rate. Since there’s often no interest for the introductory period, that means that for half a year, 100% of what you pay is going towards paying off your debt.
No matter how big your debt is, any amount of time not paying interest will save you money. In fact, depending on how much debt you have and how much interest you’re currently paying, it could save you hundreds or thousands of dollars in interest.
How much can you save? An Example
Let’s say you owe $4,000 at a 20% APR and you plan to pay $400 per month.
At 20% APR and considering month-by-month declining balance calculations, you’ll pay roughly $315 in interest over 6 months.
At 0% APR, you’ll pay zero interest over the same period, i.e., you’ll save $315 by not paying interest. And that money can go toward paying off your principal. If you increase your payment even slightly during this period, you can accelerate your progress even more.
When is a balance transfer a good idea?
Rather than listing the pros and cons of a balance transfer, the best question to ask is: Is a balance transfer the right option for me? The answer depends mostly on your individual financial situation.
Here’s when a balance transfer is a good idea:
- You have high-interest credit card debt. If your debt is limited to credit cards, a balance transfer can be a powerful tool for savings. If you have many different types of debt and the situation feels overwhelming, it may be more helpful to compare a balance transfer vs debt consolidation to see which structure works best.
- You have good credit. You typically need a credit score of 670 or higher to qualify for a balance transfer card. But even if your credit isn’t perfect, you may still have options to do a balance transfer. Here at Valley Credit Union, for example, we love to work with our members to get them the best deal possible.
- You’ll be able to pay off your debt during the 0% interest promotional period. If you can pay off most or all of your balance within the 0% window, you’ll save the most money and make the fastest progress.
- The go-to rate is low. If you won’t be able to pay off your debt during the 0% interest promotional period, look for a card that also offers a low go-to rate. Even a slightly higher go-to rate may make sense depending on how long the promotional period is and what your remaining balance will be after it ends.
- The balance transfer fee isn’t higher than what you’d save on interest. Our cards have no balance transfer fees, but some other cards do. If you’re considering applying for a card with a fee that’s higher than the amount you’d save on interest, you should look for a different card that doesn’t have a balance transfer fee.
Related: How to Use Credit Cards to Your Advantage
The Step-by-Step Guide on How to Transfer Credit Card Balance
The balance transfer process is simpler than most people think. Below, we explain how to transfer credit card balance amounts and what to expect at each stage.
Step 1: Review Your Current Debt
Start by gathering the basics: your balances, interest rates, minimum payments, and monthly budget. This helps you see how much you could save with a 0% promotional period.
Step 2: Choose the Right Balance Transfer Card
You may be able to use an existing card, or you might need to apply for a new one. Look for a card with a low promotional rate, a low go-to rate after the promo ends, and no hidden fees. You may need to do some math to make sure your chosen card will indeed save you money when it’s all said and done.
Step 3: Apply for a New Card (If Needed)
If you decide to open a new card, submit your application and wait for approval. Your credit profile may influence how much you can transfer.
Step 4: Request Your Balance Transfer
Once your card is active, request the transfer. You’ll provide the creditor name, account number, and the amount you want to move. This can usually be done online or by calling your card issuer. Most transfers take a few days to a few weeks. Keep making payments on your old account during this time to avoid interest or late fees.
Step 5: Make Consistent Payments
Pay on time each month to keep your promotional rate active. Avoid adding new charges to the card unless necessary. Using the card for purchases can make it harder to track your payoff progress. Now it’s just a matter of staying on track and making consistent payments until you’ve paid off your principal.
Balance Transfer FAQs
Do balance transfers affect your credit?
A balance transfer can cause a small temporary dip if you apply for a new card. Over time, though, paying down your balance faster and lowering your credit utilization will help improve your credit.
What’s the difference between a balance transfer and debt consolidation?
A balance transfer moves credit card debt to a low or zero-interest credit card so you can save money in the short term. Debt consolidation combines multiple debts into one fixed-rate loan with a longer repayment period. This is the core difference in the balance transfer vs debt consolidation comparison.
What happens if I still have a balance after the promotional period ends?
You’ll pay interest on any remaining balance with the card’s regular go-to rate. This is why it’s important to consider if you’ll be able to pay off your principal during the promotional period and the go-rate rate if not.
Is there a limit to how much I can transfer?
Yes. Your approved credit limit determines the maximum amount you can transfer. If you need help understanding your available credit or whether a specific amount can be transferred, our team can walk you through it.
What if I miss a payment during the promotional period?
Missing a payment may cause your promotional rate to end early, which means interest could begin accruing immediately. Setting up automatic payments can help you stay on track.
Considering a balance transfer?
A balance transfer can be a great way to simplify your credit card debt and help you get ahead. The key is understanding how the process works, knowing what to look for in a balance transfer card, and creating a payoff plan that fits your financial situation.
If you live in the Salem, Oregon area, we would love to answer any questions you have and help you decide if a Valley Credit Union balance transfer is the best way to reduce your debt and pay less interest.
As a credit union, we are a nonprofit cooperative with no obligation to corporate shareholders and no agenda other than to help our members meet their financial goals. Call us today at (503) 364-7999.
About the Author
Jake Turpin, Vice President of Member Services
Jake Turpin, Vice President of Member Services, recently marked his three-year milestone at Valley Credit Union. With more than 15 years of experience in the industry, Jake continuously seeks to strike the ideal balance between exceptional customer service and operational efficiency. Beyond his contributions to the credit union, Jake dedicates his time to coaching his children in baseball and soccer. And when he's not at the credit union or on the field, you're likely to find him at the gym, maintaining a well-rounded and active lifestyle.