How Credit Card Balance Transfers Work

A balance transfer involves moving debt from one credit account to a different credit account, usually to get a lower interest rate. Credit cards offering a 0% APR — or 0% interest rate — on balance transfers do not charge any interest for the promotional period's term. If you are looking to reduce high-interest credit card debt, this may be a strategic move. Transferring high-interest debt to a lower interest rate card can save you hundreds of dollars in interest or allow you to pay the balance off faster.

How to do a balance transfer:

1. Look at your debt to see how much you owe.
   Review your credit cards and any high-interest loans and list each debt, its interest rate, and the balance.

2. Determine which method you want to use to pay down your debt — The Snowball Method or the Avalanche Method.

   The debt snowball method reduces your debt starting with the smallest balance first. In this method you focus your attention and any extra payment to the smallest debt while continuing to make your minimum payments on all your other debts. When your smallest balance debt is fully paid, you roll the money you were using for that payment of the debt with the next lowest balance. You continue this until all your debts are paid in full.

   The debt avalanche method reduces your debt starting with the highest interest rate first. From this point, the steps are the same. You focus your attention and any extra payment to the highest rate debt while continuing to make your minimum payments on all your other debts. When your highest rate debt is fully paid, you roll the money you were using for that payment of the debt with the next highest rate balance. You continue this until all your debts are paid in full.

   Both the debt snowball and the debt avalanche method are effective strategies to get out of debt. Ask yourself: Which strategy will keep you motivated?

3. Determine which debts to include in the balance transfer and initiate your balance transfer.
   Once you determine your method to pay off your debt, you can easily decide which cards and debts to include in your balance transfer. You can transfer any debt balance up to your available credit limit.

   Balance transfers can typically be completed online or through a mobile app. To begin the process, you will need to provide the amount of the debt, creditor name, and account number for the balance you wish to transfer. You also will need to be sure the available credit on the card you are transferring is high enough to accept the balance and any transfer fees imposed for the transaction, anywhere from 3% – 5% of the transfer request.

4. Pay the balance down. It’s important to have — and be committed to — a plan to pay down your debt.
   During the 0% intro or promo period, you can work to pay down the principal without accruing or having to pay interest. You can save hundreds of dollars during this period. Once the period ends, you will begin to accrue interest on any remaining balance, according to your credit card agreement.

If you are carrying high-interest debt that will take you several months to pay off, a 0% APR credit card offer could be very beneficial. The secret to getting the most value out of these offers is simple: Keep making your monthly payments until your balance is paid off. You could save hundreds in interest and improve your overall financial health by reducing your debt quicker.