6 things to do after completing a balance transfer

Balance transfers can be a powerful tool when it comes to paying down debt, but what you do after completing a balance transfer will determine your success. Not only do you need to understand how balance transfers work, but you need a game plan for paying down as much debt as you can — for the lowest possible cost.

Your primary goal should be to pay off the transferred balance before the introductory offer ends. If you fail to meet this goal, any remaining debt you have will be charged interest at the card’s regular variable APR. You can also use this time to master your budget, monitor the progress of your credit score and get serious about using your credit cards responsibly and strategically going forward.

Here are six tips for what to do after completing a balance transfer:

1. Decide what to do with your old credit card

When you transfer a credit card balance from one card to another, you are left with the old card that should have a $0 remaining balance. While you may be tempted to close this card, this can be a mistake for more than one reason. The fact that the average length of credit history makes up 15 percent of your FICO credit score means keeping old cards open can help your credit. Having an old credit card with a $0 balance can also help lower your credit utilization ratio, which makes up another 30 percent of your FICO score.

As long as you’re not facing fees or the temptation to run up another balance, it’s a good idea to keep it open. You can still do any of the following with the card:

• Lock the card through your online account
• Remove it from your wallets (both digital and physical)
• Store it somewhere secure

If you’re concerned about paying an annual fee to keep the account open, you could ask your card issuer to switch your card to a no-annual-fee credit card after completing your balance transfer.

2. Set a budget and stick to it

Look at the completion of your balance transfer as an opportunity to create and stick to a budget. Knowing exactly where your money is going means you can assess what costs to cut and how much you can afford to dedicate to paying down your balance each month.

Creating a budget is also a good step as you embark on your debt management journey. After all, mastering the practice of budgeting can keep you on track to avoid high-interest debt in the future.

To start a monthly budget, list out all your fixed and estimated expenses for the month in one column and your anticipated monthly income in another. From there, look for areas you can cut back or spend less on in the future. For discretionary categories like groceries, dining out and entertainment, figure out a fixed budget amount to spend each month you can live with.

3. Align your payoff plan with your intro offer terms

The best way to maximize your balance transfer is to pay off the transferred debt within the introductory APR period. During this time, your new balance transfer card issuer won’t charge interest on the card’s balance. To calculate what monthly payment to aim for, use Bankrate’s credit card payoff calculator.

Adjust your spending to allot as much money as you can toward paying off your balance — doing so could save you from paying any interest at all. Don’t forget to factor your balance transfer fee into the new balance on your card. This fee can be anywhere from 3 percent to 5 percent of your transferred balance, depending on the card.

4. Set up automatic payments

One of the best steps you can take after a balance transfer is to set up automatic payments. This ensures you’re always paying down your balance and paying on time. Try to make these payments more than the minimum due. Doing so can help you pay down your debt faster. Issuers consider missing a payment a violation of your card’s terms and conditions and can void your intro APR grace period. In this case, the card’s regular, ongoing APR would kick in immediately.

Set up this recurring payment to come out as frequently as you can handle — either biweekly or monthly — on or before the payment due date. If you want to be sure your balance is paid in full by the time the intro period ends, divide your total balance owed by the length of your intro APR period. This calculation will give you the total amount you’d need to pay each month.

For example, suppose you are transferring a balance of $4,000 to a card with a balance transfer fee of $200 and an intro APR period of 21 months. You would divide $4,200 by 21 months and would set up a monthly auto payment of $200.

5. Avoid using other credit cards after a balance transfer

If you can, you should avoid making new purchases on all credit cards you have. This is true even for your new balance transfer card if it has an intro 0 percent APR period for purchases. If you spend on the card to take advantage of the intro APR, you will be adding to the total balance you must pay before the intro APR period ends. This obviously makes debt more difficult to pay off since you’re actively working against your goals.

You also run the risk of creating another large balance on a different card, which can negatively affect your credit. Our advice? Focus on building good money management habits and paying off your transferred balance before you begin using credit cards again.

6. Keep a close eye on your credit score

Keeping your credit utilization low and making regular, on-time payments each month will give your credit score a steady boost. Use your credit score as a measure of success with your balance transfer. It’s easy to set up free credit monitoring with one of these services to get notified as your balance goes down and your score goes up:

• Experian credit monitoring
• CreditWise
• MyFICO

Checking your credit report also lets you catch and dispute any other credit concerns that may hinder your progress. One of the best parts of making an intentional change is being able to check your work, and your credit score is a tool to let you do just that.

What to do if you don’t pay the debt in time

Ideally, you’ll pay off the entire balance you transferred within your card’s intro 0 percent APR period. However, you may find you’re left with some lingering debt once the offer period ends.

In this case, the remaining debt will be charged interest with the card’s regular variable APR, which will likely be on the high side. This means you’ll want to pay it down or off completely as quickly as you can. Here are some moves to consider:

• Make a lump sum payment. If you have any savings you can use to pay off the remaining balance, doing so can make sense. With average credit card interest rates on most balance transfer cards close to or above 20 percent, paying off your remaining debt can lead to considerable savings.
• Pay down the debt monthly. If you don’t have the cash to pay off remaining debt in one fell swoop, paying as much as you can each month can still help you cut down interest charges as you pay it off.
• Consider a debt consolidation loan. You can also consider a debt consolidation loan to pay down remaining debt. These loans come with fixed interest rates and set monthly payments that do not change, although they never offer 0 percent APR.
• Transfer the balance to another 0 percent APR card. It might be possible to transfer your existing balance to another 0 percent APR credit card when your current card’s balance transfer period ends. This will give you the opportunity to pay the balance off interest-free for a second time. However, balance transfer fees will still apply.

The bottom line

By learning what to do after a balance transfer, you’ve taken a step in the right direction toward managing your debt. Now, it’s time to use this tool to your advantage and save as much money as you can on interest:

1. Set up your repayment plan immediately and stick to it.
2. Figure out what you’ll need to pay each month to make sure your balance is completely paid off by the time your intro APR period ends.
3. Create a budget that will keep you on track while you pay off your balance transfer and beyond.