Paying Off Credit Card Debt with Balance Transfers

Credit card balance transfers allow you to move debt from an existing credit card over to a new card. If used strategically, balance transfers can be an effective method for consolidating and paying off credit card debt more quickly.

How Do Balance Transfers Work?

A balance transfer involves opening a new credit card that offers a promotional 0% introductory APR on transferred balances. You can then request to transfer outstanding balances from your other higher-interest cards over to the new card.

The process involves:

Comparing balance transfer card offers and choosing one new card.
Completing the balance transfer request after the new account is opened.
Stopping all new charges on the old cards with transferred balances.
Paying off the consolidated balance on the new card within the 0% intro period.
Avoiding deferred interest promotions requiring repayment in full.

This allows you to simplify repayment, often at a lower interest rate, while focusing on paying off credit card debt faster.

Key Benefits of Balance Transfers

The main benefits that balance transfers provide for paying off credit card debt include:

Lower Interest Charges

The top incentive for balance transfers is taking advantage of 0% intro APR offers on new credit cards. This temporarily lowers the interest rate owed on existing credit card balances you transfer over.

Consolidated Payments

Transferring multiple credit card balances onto one new account lets you consolidate several monthly payments into one. This simplifies tracking and paying off debt.

Fixed Payoff Timelines

Intro 0% APR periods on balance transfers usually last from 12-21 months. This provides a fixed timeline for focusing accelerated payoff efforts.

Debt Management Motivation

Opening a new dedicated account for paying down credit card debt can provide additional motivation and focus on debt elimination.

Access to Added Benefits

Some balance transfer cards also offer rewards on new purchases or additional perks, providing further value.

What are the Risks of Balance Transfers?

While balance transfers can help pay off debt faster, some potential downsides to consider include:

Upfront Balance Transfer Fees

Most balance transfer cards charge an upfront balance transfer fee, usually 3-5% of the amounts transferred. So transferring $5,000 in debt would incur a $150 – $250 fee. This cuts into the potential savings.

Deferred Interest Promotions

Watch out for deferred interest promotions that require repaying the entire transferred balance before the intro period ends. Otherwise, all the deferred interest gets added to your balance.

Lengthy 0% Intro Periods Encouraging Complacency

While 0% intro periods allow focus on repayment, excessively long periods of 12+ months could encourage complacency and minimum payments. Establish an accelerated payoff plan.

New Purchases and Cash Advances

Avoiding all new purchases and cash advances on both the new and old cards is essential to pay down transferred balances effectively. New charges accrue interest and fees.

Possible Credit Score Impacts

Opening a new account and closing old accounts may temporarily lower the average age of credit history on your credit reports. This could impact credit scores slightly.

Step-by-Step Process for a Balance Transfer

Follow this step-by-step process for effectively utilizing a balance transfer to pay off credit card debt:

1. Compare Balance Transfer Card Offers

Research cards offering 0% intro APR periods for 12-21 months on transferred balances. Compare fees, promo lengths, and additional benefits like rewards.

2. Get Approved for a Balance Transfer Card

Submit an application for your chosen balance transfer card and get approved with a credit line sufficient to transfer your existing balances. Avoid deferred interest cards requiring repayment in full by the end of the intro period.

3. Halt New Charges on Old Cards

Stop all new spending on the credit cards you plan to transfer balances from. This prevents inflating the payoff amount.

4. Transfer Balances After New Card Arrives

Once approved, wait for your new balance transfer card to arrive. Activate it and submit transfer requests for the balances you want to consolidate.

5. Make Payoff Plan for Transferred Balances

Determine your required monthly payment to eliminate the transferred balance in full before the 0% APR intro period expires. Add extra principal payments if possible. Automate payments.

6. Pay Down Old Cards As Balances Transfer

As you wait for balance transfers to process, continue making at least the minimum payment on original cards to keep accounts in good standing.

7. Close Old Accounts Once Paid Off

After paying your old cards down to zero, you can opt to close those accounts once balances transfer if you no longer need the credit available. This simplifies management.

Ideal Credit Card Balances for Transfers

The best types of credit card balances to transfer over for accelerated payoff include:

High-Interest Balances

Moving over balances sitting at 15%+ standard rates onto a 0% APR card creates substantial interest savings. Pay down as much as possible while rates are low.

Scattered Balances on Multiple Cards

Consolidating several balances onto one card simplifies repayment with just one payment and due date.

Large Balances Close to Credit Limits

Transferring maxed out or large balances eases the pressure of high utilization on credit scores. Freed up credit lines allow balance shuffling as needed.

Old Standing Balances

Long-standing revolving balances that have remained at roughly the same levels indicate difficulty paying off. A transfer onto a dedicated payoff account can provide focus.

Questions to Ask Before Transferring Balances

Before transferring existing balances to a new card, ensure you can answer the following questions:

What is the balance transfer fee and how much will it cost based on my balances?
What is the length of the 0% intro APR promotional period?
Do I have a plan to pay off balances in full before deferred interest kicks in?
Can I afford to continue making payments on the old cards as balances transfer?
Will I avoid new purchases and cash advances on all cards involved?
Is my credit score in adequate shape to get approved for a balance transfer card?

Thinking through these considerations helps avoid potential traps and ensures balance transfers will benefit your situation.

Maintaining Payments After Transfers

Once balances get transferred, continue making at least the minimum payment on time each month on all affected cards to avoid fees and penalties:

New Card: Pay the monthly amount required to pay transferred balances in full before promo period expires.
Old Cards: Keep paying minimums until balances transfer off and accounts show $0 balances.
All Cards: Never miss a payment which could trigger deferred interest or default APRs.

Meeting ongoing minimum payment requirements is essential for balance transfers to work as intended.

What to Do Once Balances are Paid Off

Once all transferred balances are paid off in full:

Consider closing old card accounts to simplify finances.
Avoid future balance transfers and focus on paying all balances in full each month.
Shift to using the paid off card only for affordable purchases paid in full.
Continue monitoring credit reports and scores for any temporary impacts that reverse over time.
Build up emergency savings to avoid relying on credit cards in the future.

Succeeding with a balance transfer to pay off debt provides an opportunity to rethink credit card usage and focus on prudent financial habits going forward.

Alternative Debt Payoff Options

While balance transfers can accelerate payoff timelines in many cases, some other options for credit card debt elimination to consider include:

Debt management plans through non-profit credit counseling agencies
Debt consolidation loans allowing fixed payoff periods of 2-5 years
401(k) loans if permitted by your retirement plan rules
Part-time jobs providing supplemental income for debt payments
Budget overhaul and lifestyle changes to dedicate more to repayment
Debt snowball or avalanche strategies without balance transfers

Evaluate alternatives against your specific debt situation to determine if a balance transfer makes the most financial sense.

Key Takeaways

Balance transfers allow consolidation of multiple debts onto one card with lower interest charges.
Take advantage of 0% intro APR periods to focus payoff efforts on transferred balances.
Avoid deferred interest cards and new charges on any cards involved.
Close paid off old accounts and alter spending habits after completing transfers.
Compare alternatives like debt management plans based on your financial circumstances.

With strategic planning and disciplined follow-through, balance transfers facilitate acceleration of credit card debt repayment through consolidated payments at lower promotional interest rates.