• A balance transfer is actually a simple concept. You transfer the balance from an existing credit card to a new one. You apply for a new credit card, and if you are approved you transfer your existing balance to the new card. 

• You are essentially paying off one credit card with another. However, you can save money and get out of debt quicker because the new card has a lower interest rate, which means more of your monthly payment goes directly to the principal balance.

• After applying for a new credit card from the financial institution you chose to do a balance transfer with, you will be notified about your approval and credit limit. The amount you can transfer depends on the credit limit you were approved for.

• To start the actual balance transfer, there is usually an online form to submit, or you might be able to start over the phone or in person. Some of the information needed include the amount you wish to transfer, the credit card merchant name (Chase, Citi Group, etc.), and the payment address for the card with the balance you want to transfer.

• A payment will be mailed to the credit card merchant for the amount you were approved for. Please note, if you have an approaching payment due date on the old card you should consider making a payment as the payment from your new financial institution could take up to a few weeks to process.

When looking for a credit card to transfer a balance to, there are a few tips to help your search.

• Interest Rate: Make sure the new credit card has a lower interest rate than your existing credit card. Be aware that big banks can make balance transfer offers look very attractive with a low or zero percent introductory interest rate that can sky rocket before your balance is paid off. It’s important to determine if you can pay off your balance before the promotional period ends.

• Balance Transfer Fee: Look for a credit card with no balance transfer fees. Buried within the fine print of many big bank balance transfer promotions is often a balance transfer fee, that can typically range from 3% to 5% of the amount you plan to transfer. For example, if you want to transfer $5,000, a 3% fee would cost you $150.  

• Annual Fee: Pay attention whether or not the credit card you want carries an annual fee. Many reward-based cards do have annual fees.

• Reward Options: Be aware that credit cards that offer rewards or cash back options often come with a higher interest rate than cards with no reward options. Most credit card merchants do not allow you to earn rewards on your incoming transfer amount.

If you have been approved for a new credit card and are taking advantage of a zero percent interest rate promotional offer, it’s recommended that you don’t use the new card for every day purchases as interest will accumulate on those transactions.

• Transferring balances from multiple credit cards consolidates your payments into one place.

• You are able to pay off your credit card debt faster when you transfer a balance to a lower-interest credit card because more of your payment goes towards the principal balance.

• You might not see it right away, but a balance transfer can improve your credit score when you make payments on time, and simply by having another line of available credit.