How to transfer balance

What does a balance transfer on a credit card mean? Simply, it means moving the outstanding debt from one piece of plastic to another card, usually a new one. Credit card balance transfers are typically used by consumers who want to move the amount they owe to a credit card with a lower interest rate, fewer penalties or benefits, such as rewards points or travel miles.

Many credit card companies offer free balance transfers in order to entice people to choose their products over a competitor's. As an additional sweetener, they often offer a promotional or introductory period of anywhere from six to 21 months (federal law requires at least six), in which no interest is charged on the transferred sum. With proper diligence, savvy consumers can take advantage of these incentives and avoid high interest rates while paying down debt. But they need to study offers carefully, as many credit transfers involve unexpected charges and other conditions that impact those great-sounding terms.

How to Do a Credit Card Balance Transfer

If you've been approved a new credit card with a 0% interest balance transfer offer (and make sure that anyone who is approved for the card will get the 0% rate, or if it depends on a credit inquiry) here are the steps you’ll want to take before you actually make the move, and the steps for completing the transfer.

1. See where you stand and choose balances to transfer.

List all of your credit cards, their balances and their interest rates. Choose one or more cards with high rates whose balances you’d like to transfer to save money on interest. The balance doesn’t have to be in your name to qualify for a transfer, so if your new spouse has a high-interest credit card balance and you have excellent credit, you might use a 0% offer to help pay off his or her old balance and start over together debt-free.

2. Calculate your balance transfer fee.

Note the balance transfer fee if there is one, and calculate how much you’ll pay on the amount you want to transfer. The fee is typically 3% to 5%, meaning you’ll pay $30 to $50 or every $1,000 you transfer. Even with the new, lower interest rate, will you still come out ahead after the balance transfer fee? Use an online balance transfer calculator to do the math.

Also note if there's an amount cap on the fee. If so, that can really make transferring larger balances worthwhile. Say, for example, there's a balance transfer fee of 3%, up to a maximum of $75. You transfer a balance of $5,000 – but because of the cap, you don't pay $150 (3% of $5,000) but $75: an effective interest rate of only 1.5%.

3. Understand the penalties.

After the transfer, you can’t just forget about the balance and let it sit there for a year. You still have to make the minimum monthly payment on the card before the due date to keep that 0% rate. If you miss one, the balance may immediately start incurring interest. Pay attention to the interest rate you’ll pay: Will it be a default rate that’s higher than what you’re paying now? Similarly, if you default under any of the cardholder agreements, such as making payments late, going over your limit, or bouncing a check, the interest rate can jump to a penalty rate which could be as high as 30%.

4. Know when the promotion ends and what happens when it does.

The 0% rate is usually valid for 12 or 18 months. If you’re planning to pay off a transferred balance during an introductory period, calculate whether you’re likely to be able to pay it in full during that time. If not, what interest rate will you pay when the introductory period ends, and will you still come out ahead? Don’t expect a reminder from the credit card company that your promotional rate is ending, by the way: It's hoping that you'll miss the deadline and have to start paying interest on your balance.

5. Check the time limit for completing the transfer.

If you’re getting a new credit card account, the terms will require you to complete the balance transfer within a certain number of days (usually one to two months) to receive any promotional rate. Read the fine print carefully to see how big that window of time is. Complete the transfer the day after that window closes and you’ll pay the regular interest rates.

6. Make sure you meet the basic requirements for the balance transfer.

Generally, you cannot do a credit card balance transfer if your new account is with the same company as the card whose balance you want to pay off – for example, you cannot transfer a balance from one Citibank credit card to another. Also, if you have a past-due payment with the creditor to which you want to transfer the balance, or if you have filed for bankruptcy, your transfer request may be declined.

7. Decide how much to transfer.

Check the credit limit on your new card: You can’t request a balance transfer for more than your available credit line, and balance transfer fees count toward that limit. For example, if you have $10,000 in available credit, you won’t be able to transfer a $10,000 balance with a 3% balance transfer fee; you’d need to have $10,300 in available credit to complete the transaction. The most you’ll be able to transfer is around $9,700.

8. Decide where you want the balance transfer funds to go.

Do you want them to go directly to another creditor to pay off your balance? Do you want the funds deposited to your bank account so you can pay off other debts? In the latter case, make sure the credit card explicitly states that having funds deposited to your bank account will not be considered a cash advance. If you accidentally take out a cash advance, you’ll pay interest on the transaction immediately, and usually at a high rate.

9. Request the balance transfer with your new creditor by following its specific instructions.

Although it's called a balance transfer, what's actually happening is you are using one credit card to pay off another one. The mechanics look something like this:

Balance transfer checks: The new card issuer (or issuer of the card you're transferring the balance to) gives you checks. Simply make the check out to the card company you want to pay. Some credit card companies will even let you make the check out to yourself, but again, make sure this won’t be considered a cash advance.

Online or phone transfers: Have the name, payment address and account number for the balance you’re paying off, with the amount you want to transfer.

For direct deposit: Have the bank account and routing number of the account into which you want to deposit the balance transfer funds.

10. Watch your old and new accounts.

You might inquire, if it's not stated anywhere, about the transfer timeframe. In any event, allow at least two to three days – and up to 10 days – for your new creditor to pay off your old creditor. Eyeball each old account whose balance you’re paying off to see when the balance transfer clears. In the meantime, don’t miss any payment deadlines on those accounts so you don’t incur any late fees. Keep an eye, too, on your new account to see when the balance has transferred over, especially if you want to use the card to make purchases.