How to manage debt with a balance transfer credit card

If you have substantial balances on multiple credit cards, it might make sense to opt for a balance transfer credit card.

These cards typically provide an introductory 0% annual percentage rate, or APR, on balance transfers for a specified duration, often ranging from 12 to 21 months. Consolidating your balances offers an opportunity to expedite the repayment of the principal amount without incurring interest charges.

To effectively manage your credit card debt using a balance transfer card, consider the following steps.

Related: Balance transfer or personal loan: What's the difference?

Understand your existing balances

First, calculate the total amount you wish to consolidate by comparing the combined balances on your credit cards.

This figure is essential for creating a budget and setting goals to repay your debt effectively. Additionally, take note of the APRs on your current credit cards. This information will be valuable when comparing different balance transfer offers and selecting the most suitable option.

Related: What happens when zero APR ends on a credit card?

Create a repayment plan

After determining the total amount you want to consolidate, it's important to decide how much money you can allocate toward paying off your credit card debt each month.

To make the most of the interest savings, it is recommended to make significant progress in reducing your consolidated balance during the introductory APR period. During this time, aim to pay more than the minimum payment requirement.

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To establish a financial plan, you can utilize budgeting apps or opt for the traditional method: Analyze your monthly income and subtract essential expenses such as rent, utilities and food, as well as other debt obligations like student loans or car payments.

The remaining portion of your income represents the available amount that can be dedicated to repaying your credit card debt.

By understanding your financial situation and setting a realistic budget, you can effectively manage your debt repayment strategy.

Related: Should you carry a balance on zero APR cards?

Choose a balance transfer card

Consider your budget and goals to find a suitable balance transfer card. It is important to evaluate a few factors before hastily choosing the first balance transfer card that comes your way.

Firstly, consider the credit requirements. Most balance transfer credit cards typically require good to excellent credit. Prior to submitting an application, check your credit score to understand where you stand.

Secondly, understand the terms associated with the card. Familiarize yourself with any limitations on the amount you can transfer, the duration of the promotional 0% APR period and the time frame within which you must transfer a balance after opening the account.

Lastly, consider the presence of any fees. Balance transfer fees typically range from 3% to 5% of the total balance being transferred, often with a minimum of $5. Take note of these fees and factor them into your decision-making process.

By carefully considering these elements, you can make an informed decision and select a balance transfer card that aligns well with your financial goals and circumstances.

Related: What kind of debt can you transfer to a credit card?

Use the introductory APR period

Acquiring a balance transfer card with a promotional APR provides temporary relief from paying the standard interest rate, but it is crucial to effectively manage the card to fully benefit from this opportunity to tackle your debt.

Ensure the accuracy of the balances you wish to consolidate and promptly initiate the transfer process. The countdown for the introductory APR period generally begins as soon as you open the account. Initiate the transfers promptly to maximize the duration of the lower rate (or interest-free period if you have a 0% introductory APR offer).

Be aware that certain cards have a balance transfer deadline, typically within 60, 90 or 120 days from account opening. After this deadline, issuers typically apply the standard APR to any transferred balances.

If the balance transfer limit on your new card is insufficient to accommodate all your existing balances, prioritize your cards based on the highest to lowest APR. Start by transferring the balance from the card with the highest APR, followed by the next highest, until you have consolidated the maximum allowed.

Paying your bill on time is also essential. Late payments result in fees that can offset the savings from consolidating your credit card debt. Moreover, falling behind on payments may lead to the loss of the introductory APR and the imposition of a penalty APR.

Bottom line

Balance transfers can be one of the most useful weapons in the world of credit cards, but only if you use them smartly and work to manage debt going forward. However, try to avoid using balance transfers as a long-term crutch.

By adhering to these guidelines and managing your balance transfer card effectively, you can take advantage of this opportunity to regain control over your debt.

Related: How to use a 0% APR credit card as an interest-free loan