Balance transfers work by allowing you to transfer your debt from a high interest rate card to one with a lower interest rate. To do this, a fee of 3-5% is charged on the amount being transferred. You are then able to pay a reduced interest rate on your credit card debt for six, twelve, or sometimes up to 24 months.

You have the ability to request a balance transfer when you sign up for a new credit card or you may be offered one by a current card issuer. If you get an offer from your current credit card company, you may want to think twice before doing a transfer, particularly if you already have debt on that credit card.

The reason this is important relates to how your payments are used. If you owe money at 14% and transfer a balance that is charged no interest, your entire minimum payment will be used to reduce the portion being charged 0%. While this hurts people who pay the minimum more than those who pay more, the way credit card companies allocate your payments can really cut into your savings. That, unfortunately, is the reason many companies fill mailboxes with balance transfer offers.

If you’re signing up for a new card, it’s best to wait till the card is actually issued and mailed out before requesting a balance transfer. Why is it best to wait? Because unless your credit is excellent, you may not actually end up with the rate begin advertised. Most cards will not tell you what your interest rate will be, or the amount of credit offered, until your application has been fully processed. By waiting, you avoid transferring a balance to a card that does not offer the best rate or does not allow the full amount owed to be carried over.

Once you set up your balance transfer, it can take up to six weeks for it to be completed. Though many are processed much sooner, it’s crucial you stay on top of paying your old card until you’re sure the balance has been transferred. Typically, interest fees have also been accruing during this time so it’s likely there will be a bit of a balance on your old card, even after the transfer has occurred. Make sure you keep an eye on it until you’re sure the debt is completely paid off to avoid late fees and potential damage to your credit score.

Once your transfer is completed. the best way to approach your credit card debt is to develop a plan to pay the balance off in full before the 0% interest rate expires. Having a plan can help keep you focused on paying off your debt and leave you in a position where you don’t need to do another 0% APR balance transfer (or two or three) to become debt free.

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