7 ways to get the most out of a balance transfer credit card

Credit Sesame’s seven quick tips on getting the most out of a balance transfer card.

In 2024, balance transfer credit cards remain a powerful tool for managing debt, but the landscape has evolved. Here are strategies to maximize your benefits from a balance transfer credit card:

1. Assess introductory offers carefully

Check the introductory APR (Annual Percentage Rate) period and terms carefully. Look for cards offering 0% APR on balance transfers for 18 to 21 months. Consider whether the card provides enough time for you to pay off your debt interest-free. The length of the introductory period is crucial because it determines how long you have to pay off your debt without incurring interest. A longer period gives you more time to pay down the balance before interest kicks in.

2. Calculate all fees involved for the new balance transfer credit card

Balance transfer cards often come with a transfer fee, typically around 3% to 5% of the transferred amount. Some cards also charge annual fees. Calculate these costs to ensure the savings from the transfer outweigh the fees. Fees can erode the savings from a balance transfer. By understanding the full cost, you can choose a card that provides net savings.

3. Check the post-introductory rates

Examine what the interest rate will be after the introductory period ends. Opt for a card with a low ongoing APR if you anticipate carrying a balance beyond the introductory period. Knowing the post-introductory APR helps avoid surprises and ensures that any remaining balance won’t accrue high interest, negating the benefits of the transfer.

4. Confirm promotional rate applies to purchases

Some balance transfer cards offer 0% APR on both balance transfers and new purchases. This can be advantageous if you need to make additional purchases without incurring immediate interest. A card that extends the promotional rate to purchases can be beneficial if managed carefully, allowing for flexibility in spending without accruing interest on new purchases.

5. Understand the credit impact of a balance transfer credit card

A balance transfer can temporarily lower your credit score due to the hard inquiry that occurs when you apply for a new credit card. It also impacts your credit utilization, which is the percentage of your total available credit currently in use. Transferring a balance to a new card can affect this ratio in different ways. If the new card has a lower credit limit, the credit utilization for that specific card increases, but assuming you keep the old card open, your overall credit utilization across all cards generally decreases, which is usually good for your credit score. To qualify for the best balance transfer offers, ensure your credit score is in good shape. Regularly monitoring and managing your credit health will help you secure favorable terms and maximize the benefits of a balance transfer.

6. Set up automatic payments

Avoid missed payments by setting up automatic payments for at least the minimum due. Missing a payment can void the introductory rate, leading to immediate interest charges. Automatic payments help maintain your introductory rate by ensuring you never miss a payment deadline, which is critical to avoiding penalties and interest rate hikes.

7. Develop a repayment plan

Create a detailed repayment plan to pay off the transferred balance before the introductory period ends. Break down the total amount by the number of months in the promotional period to set achievable monthly payment goals. A structured repayment plan ensures you stay on track to eliminate the debt within the interest-free period, maximizing the financial benefit of the balance transfer.

By applying these strategies, you can effectively use a balance transfer credit card to manage and reduce debt. Careful planning, diligent management, and understanding the nuances of the terms and conditions will help you maximize the benefits and avoid pitfalls.

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Disclaimer: The article and information provided here are for informational purposes only and is not intended as a substitute for professional advice.