If you’ve racked up some debt on a credit card, but have also improved your credit score by making consistent, on-time payments, you may be wondering: How do I transfer a balance from a bad credit credit card to a regular card with a lower interest rate?
A balance transfer can save you some serious cash on interest costs, especially if you transfer your debt to a card that offers a 0% APR period. Here’s what you need to know.
How balance transfers work
When you do a balance transfer, you are basically paying off your existing credit card(s) with a new one, hopefully with a lower interest rate. This will help you save on interest costs and hammer down the principal of your debt.
For example, if you’ve been paying 20% interest on your bad credit credit card with a $5,000 balance and paying just the minimum monthly payment of 2% ($100), you’ll end up paying $5,840 interest, according to TheCalculatorSite.
Transfer that balance over to a regular credit card with a 0% APR period of 12 months or longer, and you can take a big bite out of your credit card balance before any interest is charged.
Find a card that best suits you and apply
Keep in mind that balance transfers typically cost 3% to 5% in fees on the amount you are transfer, so a $5,000 balance transfer could cost anywhere from $150 to $250.
Factor in the length of the 0% balance transfer period versus the fee. If it’s going to take a while to pay off your debt, it’s best to look for the longest 0% period possible, because the interest savings will likely outweigh the fee.
If you plan on carrying a balance after the 0% period ends, you’ll need to consider what the ongoing interest rate is. And if you plan on making regular purchases on the card, see if the card offers any rewards on your spending.
Transfer your balance to the new card
Once you apply and get approved for the card, you’ll be able to do the balance transfer. Most banks allow you to complete a balance transfer online, but you can always contact the bank that you are transferring the balance to and ask them to help you.
Keep in mind that you’re still required to make minimum monthly payments on the new card. Failure to do so can result in a cancellation of the 0% APR promotion, so this is crucial. Consider setting up automatic monthly payments to be drafted from your checking account.
When it comes to your old card, continue making the minimum monthly payments if you still have a small balance after the transfer. If the card’s paid off in full, don’t cancel it: you’ll want to keep it open to maintain a low credit utilization ratio, which should help your credit score. But avoid running up new debt on the old card at all costs, as you’ll cancel out the benefit of the balance transfer and put yourself back where you started.
Transferring a balance from a bad credit credit card to a traditional card with a 0% APR promotional period can be a very smart way to pay down your debt. You just need to find a card that’s a good fit for your own personal situation and continue to make payments on time.
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The post How to Transfer a Balance from a Bad Credit Credit Card appeared first on NerdWallet Credit Card Blog.
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