As a savvy credit card holder, you know it’s best to avoid taking on more debt than you can afford. You know how to calculate your debt-to-income ratio. When applying for a new credit card, you know how to compare credit cards to find the card that’s best for you. But did you know that a balance transfer could also be a useful financial management tool?
A balance transfer allows you to transfer your current balance from a credit card or loan to another credit card. Some new credit cards offer low introductory APRs on balance transfers. A credit card you already have may also occasionally offer low promotional APRs on balance transfers. These low introductory or promotional APRs are for a specified period, after which the credit card’s standard APR for balance transfers applies.
Why would you make a balance transfer? Let's say you signed up for a credit card and, because you didn’t pay the full statement balance by the due date each month, you’re incurring high interest charges on your balance. Now, you're wondering how to pay off the debt you incurred.
Balance transfers can help consolidate debt and reduce interest payments. Let’s take a look at how to use balance transfers as a straightforward way to pay off debt.
How to manage a balance transfer:
1. Understand the terms and conditions of your balance transfer, including the introductory or promotional APR that applies to the balance transfer, how long it applies and the APR that applies to balance transfers once that period ends.
2. Don't let the fact that you're paying less interest on the balances you've transferred stop you from paying off your debt in a timely fashion. Remember, after the low-interest period, any remaining balance from the transfer will start being charged at the credit card’s standard rate for balance transfers.
Additionally, the low introductory or promotional rate on balance transfers does not apply to other transactions you make on the credit card, such as new purchases and cash advances.
Furthermore, if the credit card does not also have a low introductory or promotional APR on purchases, you could pay the standard APR on those purchases unless you pay the entire balance, including the balance you transferred, in full by the due date. This is another reason it’s important to read the terms and conditions on your credit card. Also, avoiding new purchases on the card can help you focus on paying off the entire balance transfer before the introductory or promotional period ends.
3. For all your credit cards, pay at least the minimum amount on time every month. Try to pay more than the minimum and, if you can, pay the full statement balance or current balance by the due date each month. Good payment history is an important factor in building credit.
By successfully managing your balance transfer and continuing to make timely payments on all your credit cards, you're in a position to pay off your debts while building or maintaining good credit.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
