How to do a credit card balance transfer

In a time of raised interest rates, there may be a few reasons to consider switching credit cards. Ultimately, a credit card balance transfer can be a very effective tool for managing your debts more effectively. But to do this, you need to know how to balance transfer a credit card.

A balance transfer is exactly what it sounds like: a transfer of debt from one credit card to another one. The motivation behind this is often to make use of introductory 0% APR offers, but it may also be to consolidate debt, improve your credit score, or generally help pay off your debts faster.

With all that in mind, here’s how you go about a credit card balance transfer.

Before diving into the logistics of transferring a balance, you need to consider if it’s the right thing to do - the grass isn’t always greener.

While many credit cards offer a 0% interest rate on balance transfers for a promotional period, they may also charge a balance transfer fee. This is usually a percentage of the transferred amount, typically ranging from 1% to 3%. It's crucial to weigh the cost of this fee against the potential savings from the reduced interest rate.

The promotional interest rate period is another key factor. While 0% interest is a strong incentive, it's important to realise that this rate is usually temporary, lasting anywhere from 6 to 24 months. After the promotional period, the interest rate often reverts to a much higher standard rate.

It’s also important to consider the credit limit on the new card. It needs to be high enough to accommodate the desired transfer amount, otherwise you may only be able to transfer a portion of the balance. This inevitably impacts your debt management strategy and may make it less worthwhile.

The above details can usually be found on the application (make sure to check the asterisks and footnotes) and credit agreement. Reading the literature is standard practice when agreeing to use any financial product, but it’s particularly important for debt products. This is also where you may stumble across other terms that you’ve not yet considered.

1. Apply for a balance transfer card 

The first step is, of course, deciding on which card you want to apply for. Consider the terms mentioned in the previous section to help inform your debt strategy and future repayments.

Once you have decided on a credit card to apply for, you need to consider whether you will meet the credit score requirements. An eligibility check is your best-guest on whether you will be approved. Applying for a credit card will induce a hard credit check, which could temporarily affect your credit score. It’s not a good look if you have many applications and rejections on your credit report, so make sure there’s a high chance of approval.

Once you’re confident on both the credit card and the likelihood of approval, it’s time to apply. This is often completed over the phone or online. Use a secure connection when applying online, and have all of your personal and financial information pre-prepared, such as your income, employment details, and housing costs.

2. Request the balance transfer  

Once you have been approved, you will receive your new card in the post - now you can request the balance transfer.

Step 1: Gather necessary information

To start the balance transfer process, you will need the details of the credit card account from which you are transferring the balance. This includes the account number and the exact amount you wish to transfer.

Step 2: Contact the new credit card issuer

Once you have this information, contact your new credit card issuer. This can often be done online through the issuer's website or via their customer service phone line. Some card issuers also provide the option to initiate a balance transfer as part of the card application process.

Step 3: Provide the transfer details

During the balance transfer request, you will need to provide the details of the card from which you are transferring the balance. Be prepared to provide the account number and the exact amount you want to transfer. Make sure to confirm the amount you want to transfer does not exceed your available credit limit on the new card.

Step 4: Approval and transfer process

After you submit your balance transfer request, the new card issuer will need to approve the transfer. This involves contacting your old card issuer to confirm the details and pay off the amount you've requested to transfer. The process can take anywhere from a few days to a couple of weeks, depending on the card issuers involved.

3. Clear your debt

After successfully transferring your balance, the real work begins: clearing your debt. The first step is to create a payment plan. This involves determining how much you can afford to pay each month, with the aim of paying off the balance before the end of the promotional period. Make sure to budget and stick to your plan.

Try to avoid making additional purchases on the new card. New purchases could attract a higher interest rate and add to your debt, possibly making it harder to stick to your repayment plan. Additionally, some card issuers apply payments to the portion of your balance with the lowest interest rate first, meaning new purchases could take longer to pay off.

Set reminders or automate your payments to ensure you never miss a due date. Missing a payment can lead to late fees, a higher interest rate, and damage to your credit score. Finally, keep an eye on your progress. Regularly monitor your balance and payments to ensure you're successfully reducing your debt over time.