Why you should transfer a credit card balance

A woman shopping online with her credit card

Credit cards are a helpful tool, but if not used with caution they can quickly become a liability. Good usage revolves around only utilizing your credit when you know you can pay it off, in full, every month.

Use your card wisely, and companies will even provide you with cash back rewards and other deals, such as travel discounts.

But as is common with personal finance, not everything goes according to plan. You might resort to using your credit to snatch an unbeatable airfare price, while in other instances you can only afford to make the minimum payment. One month of making the minimum payment might not seem like much, but your credit limit will quickly dwindle because of more purchases and interest.

The key is to not get discouraged but instead, take action. Yes, you can always pay more than the monthly minimum, provided you have the money to spare. Depending on how much you owe, however, you may end up paying off your credit card over a longer period of time, which equates to paying more in interest.

To save money and pay off your existing balance quickly, consider transferring your balance to a new credit card with a lower rate. You can also use a new credit card with a lower interest to consolidate debt.

What is a transfer?
Here's how the process works: You shop around for a new credit card that has a low interest rate. You then transfer the balance from your other credit card to the new one. According to NerdWallet, think of this action has using the new credit line to pay for your old debt [1]. With a zero percent interest rate in most cases, the payments will become easier because there will be no interest to account for.

While simple, there are still some important considerations to keep in mind.

Free across the board
Transfers are appealing with zero interest over a specified number of months, typically ranging from six to 12.

As such, you want to ensure that if a lender is advertising zero percent interest, they stick to it. Credit scores may change the interest rate you are offered.

Be sure to also look at cards that do not charge any fees to transfer a balance. Some lenders may charge $10, or 3 percent of the balance, whichever is higher. A percentage of a large balance could actually be higher than you expected and this would cut into the money you could otherwise save.

Discipline yourself
The entire point of transferring an existing balance is to save money and pay it off faster. 

Make your payments on time and raise the minimum. Paying twice or even three times what you're asked will knock out your debt even faster. If you're even late on one payment, The Motley Fool stated the low introductory rate will increase [2]. Automatic bill payment will eliminate any trouble you might have remembering to make your payments.

Habits to avoid
Once you've transferred a balance to a line of credit, it's easy to fall back into bad habits with the old card. However, you have to be careful because canceling it can harm your credit score.

Otherwise, temper your spending habits and do not use the old card to charge purchases. Doing so eliminates all of the benefits of a balance transfer.

Furthermore, balance transfers cannot always be used because lenders will catch on. Utilize this method too many times, and you can actually hurt your score because you'll constantly be opening up new lines of credit. You'll then notice offers for 0 percent APR disappear.

Transferring a credit card balance represents a smart method to eliminate current debt quickly and save money in the process. Shop around for the best offers but focus on the ones that have a 0 percent interest rate for at least six months and do not charge any fees for transfers.

With good organization, transfers are an effective way to control your debt so you can accomplish other financial goals.

[1]. What Is a Balance Transfer and Should I Consider Doing One?

[2]. How to Win the Balance Transfer Game

The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.