What happens to your credit card after a balance transfer?
Editor's Note
For individuals new to credit cards, the concept of balance transfers may be unfamiliar.
In simple terms, a balance transfer involves transferring debt from one credit card account to another. When done strategically, balance transfers have the potential to reduce interest payments by moving the balance from a high-interest card to one with a lower interest rate, which can lead to significant cost savings.
But what happens to your old credit card after a balance transfer? Keep reading to find out.
When does it make sense to transfer a balance?
A balance transfer involves transferring debt from one credit card account to another. When executed wisely, it can result in savings on interest payments. The balance is moved from a credit card with a high interest rate to one with a lower interest rate.
For instance, by transferring debt from a credit card that accumulates interest to a balance transfer credit card offering a 0% introductory annual percentage rate, it is possible to pay off the debt without incurring any interest charges.
Related: How to choose a credit card with 0% APR
How to do a credit card balance transfer
After obtaining a suitable balance transfer card, you'll want to request the balance transfer with the new card issuer. It is important to note that this request should be directed to the issuer of your balance transfer card, not the entity from whom you are transferring the balance.
The specific procedure for requesting balance transfers may differ depending on the card issuer, but it can generally be accomplished online or via phone. It's key to be aware that certain cards impose limits on the amount that can be transferred, which means you may not always be able to transfer the entire balance to your card.
What to do after a balance transfer
Your next step is to wait. The time frame for the approval and execution of a balance transfer can vary depending on the card issuer, but it typically takes around two weeks. This means you may need to continue making payments on the debt you intend to transfer during this waiting period.
For most major issuers, balance transfers are conducted directly. This means that the issuer will submit a payment directly to your old account for the approved amount. Subsequently, this amount and a small transfer fee will be reflected in your new account.
Does a balance transfer cancel your old credit card?
After successfully transferring a balance to another credit card, your old card does not automatically close but remains open and active, with the transferred debt removed.
However, any remaining charges, fees or interest on the old card that were not included in the transfer must be paid off promptly.
The balance transfer process typically involves your new credit card issuer either paying your old issuer directly or providing you with a check to handle the payment yourself.
It's important to continue making payments on your old card until its issuer confirms the balance has been fully paid. Failure to make timely payments or missing payments can result in additional fees and potentially harm your credit score.
Related: Balance transfer or personal loan: What's the difference?
Things to consider before canceling your old card
Before deciding to close a credit card with zero balance, it's important to consider several factors:
- Impact on credit score: Closing a credit card can potentially lower your credit score, as it may increase your credit utilization ratio. A lower credit score could make it more difficult to obtain loans or secure other credit cards with favorable terms in the future.
- Future credit requirements: If you anticipate needing another credit card in the future, it may be wise to keep your old card open, especially if it offers favorable terms.
- Future rewards potential: If your old card has a rewards program that you frequently utilize, closing the card could mean forfeiting those benefits.
- Annual fees: If your old card carries a substantial annual fee and you are not actively using it, closing it could be advantageous. However, if the card has no annual fee, its potential benefits come at no cost to you.
Carefully consider these questions before reaching a decision. Your objective here is to consolidate debt and establish a sustainable financial plan for your future.
Related: Does canceling a credit card hurt your credit?
Bottom line
Conducting a balance transfer doesn't cancel your older card — it simply moves the debt from one card to another. If you want to cancel a card, you must go through a separate process.
Before canceling, you'll want to make sure it's advantageous for you to do so. Consider factors like the impact on your credit score and future rewards potential before canceling, or you might miss out on some easy perks you could've enjoyed otherwise.
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