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How to Transfer Debt from One Credit Card to Another
by
JG Wentworth
•
September 17, 2024
•
8 min
With credit card debt smashing records in the U.S., more and more Americans are scrambling to find ways to manage their finances. One strategy to help control this debt is transferring balances from one credit card to another, typically to take advantage of lower interest rates. In this article we’ll explore the process of credit card balance transfers, explaining how they work, their benefits and drawbacks, and how to execute them effectively.
What is a credit card balance transfer?
A credit card balance transfer is the process of moving debt from one credit card to another. This is usually done to take advantage of a lower interest rate on the new card, often in the form of an introductory 0% APR offer. By moving high-interest debt to a card with a lower rate, you can potentially save money on interest and pay off your debt faster.
The process
This is the overall process, to give you a high-level understanding:
- Application: You apply for a new credit card that offers balance transfers, often with a promotional low or 0% APR.
- Approval: If approved, you’ll receive your new card and balance transfer details.
- Transfer request: You request to transfer balances from your existing card(s) to the new card.
- Processing: The new card issuer processes the transfer, paying off the balance on your old card(s).
- Repayment: You now owe the transferred amount to the new card issuer and begin making payments under the new terms.
The benefits
As with any financial strategy, there are pros and cons to balance transfers. First, the perks:
- Lower interest rates: The primary benefit is the potential for significantly reduced interest charges, especially with 0% APR offers.
- Debt consolidation: You can consolidate multiple card balances onto one card, simplifying your payments.
- Potential savings: With less interest accruing, more of your payments go toward the principal, potentially helping you pay off debt faster.
- Breathing room: A 0% APR period can give you time to catch up on payments without accruing additional interest.
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Potential drawbacks and considerations
And now a few reasons why balance transfers might not be right for you:
- Transfer fees: Most cards charge a fee for balance transfers, typically 3-5% of the transferred amount.
- Credit score impact: Applying for a new card and increasing your credit utilization on one card can temporarily affect your credit score.
- Limited time offers: Promotional APRs usually last for a set period (e.g., 12-18 months), after which a higher rate applies.
- Potential for increased debt: Without proper management, you might be tempted to accumulate new debt on the old card.
Strategies for successful balance transfers
If balance transfers are the right strategy for your financial situation, here are some tips to get the most out of them:
Don’t close old cards: Keeping old accounts open can help your credit utilization ratio and the average age of your credit accounts, both factors in your credit score.
Avoid new purchases: Focus on paying down the transferred balance. New purchases may not be covered by the promotional APR and could accrue interest immediately.
Be mindful of your credit utilization: Try to keep your balance below 30% of your credit limit on all cards to maintain a good credit score.
Read the fine print: Understand all fees, including annual fees, balance transfer fees, and any penalties for late payments.
Have a payoff plan: Aim to pay off the entire balance before the promotional period ends to maximize your savings.
Consider multiple transfers: If you have more debt than can fit on one card, you might need to use multiple balance transfer offers.
Common pitfalls to avoid
Be sure to keep the following in mind as you begin your balance transfer process:
Missing payments: Late payments can void your promotional APR and harm your credit score.
Neglecting transfer fees: Factor these into your calculations when determining potential savings.
Continuing to use old cards: This can lead to accumulating new debt, defeating the purpose of the transfer.
Ignoring the regular APR: Be aware of the interest rate that will apply after the promotional period.
Applying for too many cards: Multiple applications in a short time can negatively impact your credit score.
The bottom line
Transferring credit card debt can be an effective strategy for managing and reducing high-interest debt. By moving balances to a card with a lower or 0% APR, you can potentially save hundreds or even thousands of dollars in interest and pay off your debt faster. However, it’s crucial to approach balance transfers with a clear understanding of the process, a solid repayment plan, and the discipline to avoid accumulating new debt.
Remember, while balance transfers can be a useful tool, they are not a magic solution to debt problems. They work best as part of a comprehensive financial plan that includes budgeting, reducing expenses, and developing healthy long-term financial habits. If you’re struggling with significant debt, consider consulting a financial advisor or credit counselor for personalized advice.
There’s always JG Wentworth…
Do you have $10,000 or more in unsecured debt? If so, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
SOURCES CITED
Dickler, J., “Credit card debt hits record $1.14 trillion, New York Fed research shows.” CNBC. August 6, 2024.
About the author
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.
