3 steps to take when transferring a credit card balance

If you’re chipping away at a mountain of credit card debt, you might feel like it’s a never-ending task. Part of the reason it can be hard to gain ground is high interest rates that continually add to your bottom line. If you’re looking at a pile of debt with a sky-high rate, a balance transfer might be a good option for you.

While transferring a credit card balance won’t magically make your debt disappear, if handled correctly, this strategy can be helpful, says Haley Christensen, Credit Card Specialist at Cobalt CU. The key is to know what you’re getting into and make a plan to take advantage of the benefits offered by a transfer.

“Doing a balance transfer to a card with a lower rate or a promotional rate can potentially save a family hundreds, sometimes thousands, of dollars in interest and fees,” Christensen says. “With the average household having more than $15,000 in credit card debt, the savings can be substantial.”

But not all offers are created equal – pay attention to fees and fine print before you make the transfer. Christensen suggests these steps when considering a credit card balance transfer:

Step one: Get to know the fees

Always look for balance transfer fees, which are calculated as a percentage of the total transfer amount. These fees can lower savings or even end up costing you money if you’re only transferring a small balance. Determine how much these fees will cost you and compare that number to the savings that will come from a lower interest rate. Also make sure an annual fee isn’t part of the deal.

Step two: Understand the promotional rate

Most balance transfers offer a low promo rate that goes up after a certain period of time. For example, you may be paying 1.99 percent for the first six months, and then the card will revert to a more standard rate. Christensen notes that some cards have standard rates as high as 23.99 percent. A hike like that could hurt you financially if the card still has a significant balance when the promo rate ends. If you opt to transfer a credit card balance, do your best to pay as much as possible during the promo period, and look for a card with a reasonable rate after the introductory period ends.

Also, keep in mind that the promotional rate will apply to the amount that’s transferred, not to new purchases. Additionally, payments made above the minimum are applied to the balance with the higher interest rate first. Be careful not to charge a lot of new purchases to the card – doing so can make it hard to put a dent in your debt.

Step three: Stay on top of repayments

Remember that you pursued a balance transfer as a way to get out of debt faster, not as a way to take on more. Psychologically, people sometimes feel like “clearing” a credit card with a balance transfer erases that debt, so they continue charging on the older card. Instead of falling into that trap, create a repayment plan that uses the lower balance transfer rate as a motivational force. Your larger goal should always be to eliminate credit card debt, not shuffle it around endlessly and rack up more fees and interest as a result.

When taking a look at the various offers, consider Cobalt CU’s credit card transfer option. Cobalt CU doesn’t charge balance transfer fees, has no annual fees, and provides some of the lowest APR rates on the market, starting as low as 7.75 percent.

It’s not a silver bullet, but when used strategically, transferring a credit card balance can be a tool to help you manage your debt. Be sure to read the fine print and understand the terms of your new credit card. Then work within those terms to start gaining real traction on your road to becoming debt-free.

Want more insights into how to handle credit like a pro? Download our free e-book, The Building Blocks of Credit.