3 Financial Steps to Take After Transferring a Balance to a New Credit Card

According to the Consumer Financial Protection Bureau’s 2023 Consumer Credit Card Report, 82% of debt held by major credit card issuers is revolving, or repayable. H. They roll over from month to month. The report found that one in 10 personal credit card accounts accrues more interest and fees than they pay in annual payments.

If you’re paying too much in interest alone, credit card debt can feel like an impossible burden to get rid of. But with a balance transfer credit card, you can put a stop to those costly interest fees, at least temporarily. When you transfer your debt to a balance transfer credit card with a 0% APR offer, you won’t pay interest for the 0% period (up to 21 months).

But transferring your balance to your new credit card is only part of the process. Once you’ve transferred your debt, you need to be disciplined and focus on paying it off before the promotional period ends and you start accruing interest on your balance again.

Here are three tips to help you make the most of a balance transfer credit card’s interest-free period:

1. Calculate your monthly payment

Most debt payoff strategies require some kind of planning, and using a credit card to transfer your balance to get out of debt is no exception. First, find the length of your 0% period, usually expressed in months. Then divide the total balance transfer amount by that number. The result is how much you have to pay each month to get rid of the balance before interest starts accruing.

For example, if you owe $15,000 on your credit card after a balance transfer and have 15 months of 0% interest, you’ll need to pay $1,000 per month to pay off your debt before the end of the term.

Note, however, that the above calculation doesn’t take into account the one-time balance transfer fee that you’ll have to pay up front. This fee typically ranges from 3% to 5% of the balance you’re transferring and can be significant. If your balance is $15,000, tripling it would increase your debt by $450. However, if transferring your debt would save you more than that amount in interest over 15 months (which it probably would in this scenario), it could be worth paying such a fee.

Even if your debt is protected by a 0% promotion, you’ll probably have to make at least the minimum payment on the amount you transfer each month. If you don’t, you risk losing the promotion entirely. When it comes to paying off debt, it’s not all or nothing. It’s better to pay it off every month, even if it’s a small amount.

2. Prioritize your debt

Look at all your debts, including balance transfer credit card debt, and consider which ones you need to pay off first. One option is to pay off the loans with the highest interest rates first, also known as the “debt avalanche” method. Compared to the “debt snowball” method, in which you pay off the smallest debts first, regardless of interest rate, this method will save you more interest in the long run. That’s how you achieve short-term success and gain momentum in your fight against debt.

Both methods can be helpful, but you may want to make exceptions to your chosen approach. For example, it may make sense to prioritize loans with variable interest rates or loans whose current interest rates will rise in the future. A perfect example is transferring your debt to a credit card with a 0% APR, which will likely rise into double digits after the 0% promotion ends.

According to the Federal Reserve, the average APR for extra-fee credit cards was 22.63% as of February 2024. Credit card interest rates are generally much higher than the APRs on other debts, like mortgages and car loans. So, it may be best to pay off your credit card debt with a balance transfer first, even if it’s not your highest-interest debt.

Other possible exceptions might include mortgages and student loans. The interest you pay on these loans may be tax deductible, meaning that a portion of the interest will be refunded to you as a small tax bill. Therefore, you may want to move this debt lower on your priority list in order to tackle other debts that don’t have such tax benefits.

Overall, the order in which you pay off your debts is less important than a clear plan that takes into account your loan types and interest rates, and the repayment strategy that best suits your personality.

3. Have a Plan B

While a year or more of no interest is certainly a long time, many things can happen that can affect your plans to transfer your debt before the 0% balance transfer period ends, such as losing your job or unexpected expenses. It can prevent you from paying off your cards.

Remember, there are still ways to pay off your loans without accruing too much interest. That’s how it’s done.

• Transfer the balance again. Consider transferring any outstanding debt to another balance transfer card before the APR promotional period ends. Most major credit card issuers offer multiple cards with 0% terms. You can also apply for a credit union card, which usually has a lower interest rate than cards from big banks. If you choose this method, be strategic about paying off your debt, especially since there are balance transfer fees every time you transfer debt.
• Ask for a lower interest rate. Maybe you don’t want to go through the hassle of transferring your debt to another credit card. Contact your current card issuer and ask for a lower interest rate. If you’re a loyal cardholder with a history of on-time payments, the issuer may be willing to work with you. Your request may not be granted, but you have nothing to lose by asking.
• Get help from nonprofit credit counseling. This option may be best for people with multiple debts. A credit counselor will determine whether you qualify for a debt consolidation plan to get rid of your debts. In this plan, an advisor will negotiate interest rates on your behalf and help you develop healthy financial habits. Make sure the agency they work with is a nonprofit and accredited organization, such as the National Foundation for Credit Counseling or Money Management International.

The process of paying off debt is often described as a journey, and the journey usually contains valuable lessons. If you find that you need a balance transfer card as a way to pay off your debt, use the experience as an opportunity to reevaluate your spending habits and make a plan to avoid credit card debt in the future.