Understanding What Happens to Your Credit Card After a Balance Transfer

Introduction

For individuals new to credit cards, the concept of balance transfers may be unfamiliar. In simple terms, a balance transfer involves transferring debt from one credit card account to another. When done strategically, balance transfers have the potential to reduce interest payments by moving the balance from a high-interest card to one with a lower interest rate, which can lead to significant cost savings. But what happens to your old credit card after a balance transfer? Keep reading to find out.

When Does it Make Sense to Transfer a Balance?

A balance transfer involves moving debt from a credit card with a high interest rate to one with a lower interest rate. By transferring debt from a credit card that accumulates interest to a balance transfer credit card offering a 0% introductory annual percentage rate, it’s possible to pay off the debt without incurring any interest charges. This can result in savings on interest payments.

How to Make a Credit Card Balance Transfer

Once you’ve obtained a suitable balance transfer card, you’ll want to request the balance transfer with the new card issuer. This request should be directed to the issuer of your balance transfer card, not the entity from whom you are transferring the balance. The specific procedure for requesting balance transfers may differ depending on the card issuer, but it can generally be done online or via phone. Keep in mind that there may be limits on the amount that can be transferred, so not all of the balance can always be transferred to your card.

What to Do After a Balance Transfer

After initiating a balance transfer, the next step is to wait for the approval and execution process to be completed, which typically takes around two weeks. During this waiting period, you should continue making payments on the debt you intend to transfer. When the balance transfer is approved, your new credit card issuer will either pay your old issuer directly or provide you with a check to handle the payment yourself. It’s crucial to ensure that you make timely payments and pay off any charges, fees, or interest on the old card that were not included in the transfer to avoid additional fees and protect your credit score.

Does a Balance Transfer Cancel Your Old Credit Card?

After successfully transferring a balance to another credit card, your old card does not automatically close but remains open and active, with the transferred debt removed. However, any remaining charges, fees, or interest on the old card that were not included in the transfer must be paid off promptly. It’s important to note that closing a credit card with a zero balance can potentially lower your credit score and may affect your ability to obtain loans or secure other credit cards with favorable terms in the future.

Things to Consider Before Canceling Your Old Card

Before deciding to close a credit card with a zero balance, there are several factors to consider:

• Impact on credit score: Closing a credit card can potentially lower your credit score, as it may increase your credit utilization ratio, making it harder to obtain loans or secure credit cards with favorable terms.
• Future credit requirements: If you anticipate needing another credit card in the future, it’s wise to keep your old card open, especially if it offers favorable terms.
• Future rewards potential: If your old card has a rewards program that you frequently utilize, closing the card could mean forfeiting those benefits.
• Annual fees: If your old card carries a substantial annual fee and you are not actively using it, closing it could be advantageous. However, if the card has no annual fee, you may want to keep it open to enjoy the potential benefits it offers.

Consider these questions carefully before deciding to cancel your old card. The objective of a balance transfer is to consolidate debt and establish a sustainable financial plan for the future.

Conclusion

A balance transfer doesn’t automatically cancel your old credit card. It simply moves the debt from one card to another. If you want to cancel a card, you must go through a separate process. Before canceling, make sure it’s advantageous for you to do so by considering factors such as the impact on your credit score and future rewards potential. Ensure you weigh the pros and cons to make an informed decision and avoid missing out on potential benefits.

Source: What happens to your credit card after a balance transfer?