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How to Know When a Balance Transfer Could Be a Smart Move

3 Ways to improve your credit health

Calculating debt-to-income ratio

  • (i) Add up monthly before-tax income: salary, Social Security, disability benefits, alimony, etc.
  • (ii) Add up all fixed monthly expenses: mortgages, student loans, credit cards, car loans, and rent.
  • (iii) Divide monthly payments by monthly income, and multiply the result by 100

As a savvy credit card holder, you know not to take on more debt than you can afford. You know how to calculate your debt-to-income ratio. You know to compare credit cards to find the lowest interest rates. But did you know that a balance transfer could also be a useful financial management tool?

Balance transfers allow you to transfer your current balance from the following options to a low-interest credit card:

  • a high-interest credit card
  • a store card
  • or even a loan

How does it work? Let's say you signed up for a card with higher interest rates because it gave you the best credit card rewards: discounts at restaurants, or free concierge services. Now you're wondering how to pay off the debt you incurred.

"Balance transfers can help consolidate debt and reduce interest payments," says Jason Steele, Credit Card Expert at "Of particular help are the 0% APR offers that allow cardholders to avoid interest. In addition, these offers can serve as a goal when customers strive to eliminate debt before the promotional financing expires."

How to manage a balance transfer:

1. Stay vigilant about the terms and conditions of your balance transfer:

  • Qualifying for 0% interest or low APRs may depend on your credit history.
  • Sometimes, the initial 0% interest-rate period may be adjusted. Pay attention to communications from your credit card company to stay informed of any changes.

2. Don't let the fact that you're paying less interest on the balances you've transferred stop you from paying off your debt in a timely fashion. After the low-interest period, your outstanding balance will start being charged at normal rates.

Additionally, you may not be able to avoid paying interest on purchases (sometimes referred to as a "grace period on purchases") you make during the promotional period. This is true even if your balance transfer offer has a 0% promotional APR.

3. Pay on time every month. A perfect payment history may help you build good credit.

If you successfully manage your balance transfer and continue to pay off your cards on time, you're in a good position to pay off debt, start to build credit, and maintain good credit health.

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