Ask Yourself These 3 Questions Before Doing a Balance Transfer

Should you do a balance transfer? Answer these questions to find out.

You may be sitting on quite a bit of credit card debt. If so, don't panic. Credit card balances can add up, but if you put together a solid payoff plan, you may be able to shed that debt sooner. A balance transfer may be a part of that plan.

A balance transfer allows you to move your various credit card balances onto a single card. Why might you want to do that? For one thing, having all of your debt consolidated could make it easier to track. You're less likely to miss payments when you only have one per month to make.

Furthermore, with a balance transfer, you can move your balances onto a new card with a lower interest rate. That, in turn, makes your debt less expensive to pay off. In fact, many balance transfer cards come with a 0% introductory APR. That means for a period of time (generally 12 to 18 months), you don't pay interest on the sum you move over.

While a balance transfer could be an efficient way to pay off your existing debt, it may not be the ideal move for you. Ask yourself these three questions before signing up for one.

1. Is my credit score in decent shape?

To qualify for a balance transfer, you'll generally need a credit score that's in decent shape. Now there's no specific threshold when it comes to balance transfer eligibility. You could qualify for one offer with a score of 680 while someone else might get rejected with a 690. But generally speaking, if your credit score isn't at least in the upper 600s, you may have a hard time getting approved for a balance transfer.

2. How high is the fee?

You'll generally pay a fee to move your different balances onto a new credit card. That fee can range from issuer to issuer, so before you sign up for a specific offer, you may want to shop around and weigh your options.

Generally, that fee will amount to around 3% of the amount you move over. And while that fee may seem like something not worth paying, if you're able to score a much lower interest rate on your debt via a balance transfer, it could more than make up for itself.

3. Can I transfer all of my debt, or just some?

Most credit cards limit the amount of money you can move over via a balance transfer. If you have a lot of debt, then you may not be able to consolidate all of it onto a single card. If your goal is to make a single debt payment, that won't work for you.

In that case, you may want to look at consolidating your debt with a personal loan instead. A personal loan lets you borrow money for any reason. If you owe $10,000 across four credit cards, you can take out a $10,000 personal loan, use it to pay your cards off, and then pay down that single loan with a once-a-month payment.

Keep in mind that while you may be able to score 0% interest on a balance transfer for a limited period of time, you generally will not get that option with a personal loan. But, a personal loan might result in a much lower interest rate on your debt than what your credit cards are currently charging you.

Is a balance transfer right for you?

A balance transfer can be an easy way to manage your debt and save money in the course of paying it off. Just be sure to run through these questions before moving forward with one.