Balance transfers are a smart way to pay off debt without incurring interest. You can transfer existing credit card debt to a balance transfer card that offers no interest for up to 21 months and benefit from paying off your debt faster and at a lower cost. (See our round-up of the best balance transfer cards.)
Completing a balance transfer is relatively easy and can save you hundreds of dollars on interest — as long as you prioritize paying off this debt in a timely manner.
Before you jump on a balance transfer offer, it's important to consider the terms associated with the promotion and how it will work into your budget.
Below, CNBC Select explains how to complete a balance transfer, some best practices to follow and common terms you should familiarize yourself with prior to transferring debt.
When you make a balance transfer, you move debt from one credit card to a new card that offers a low or 0% introductory interest rate period, which usually lasts six to 21 months. During this period, you won't incur interest charges and can benefit from your payments going entirely toward your principal balance.
The average balance Americans carry on their credit cards in 2019 is $6,194, according to Experian. To find out how much the average American can save with a balance transfer, we used a Bankrate calculator to tally the interest rates and fees you could incur if you transferred debt to an intro 0% APR card.
We assumed a $6,194 credit card balance and $200 monthly payments. With a typical credit card, the average consumer would spend $2,012 in additional interest, assuming the average 16.97% APR, according to the Fed. And it would take 42 months — more than three years — to pay off that debt.
But if you take full advantage of a credit card's intro APR period for balance transfers and pay $200 per month, you'd pay less than $500 in interest and cut your repayment time to roughly 33 months.
While a balance transfer card can be a great asset, things can get a bit complicated when you use the card for new purchases and the intro 0% APR offer only applies to balance transfers. Some balance transfer cards only offer introductory 0% APRs on transferred debt, meaning new purchases will incur the standard purchase APR.
If you only make the minimum payment on your balance transfer credit card, the money will go toward the balance with the lowest interest rate — i.e. the balance you transferred to the card. Any payment above the minimum will then go toward the balance with the highest APR — new purchases.
Let's take an example where you transferred debt to a new card with an intro 0% APR on balance transfers only and a $25 minimum payment. If you spend $400 on new purchases and make a payment, the first $25 goes toward the balance you transferred, not the balance you just incurred from making new purchases.
If you want to pay off what you borrowed that month in full and avoid interest altogether, you'd need to pay off the amount you spent plus the minimum payment, so $425. Any additional payment would then go toward the balance with no interest that you transferred. So if you paid $500, $400 would go toward the balance from new purchases and the remaining $100 would go toward transferred debt.
Balance transfers can be completed in a few simple steps. The process varies a bit by card issuer, but is generally the same. The simplest way to complete a balance transfer is online. You can also complete a transfer over the phone by calling the number on the back of your card.
Here's how to complete a balance transfer online:
There can be a lot of jargon to consider when navigating a balance transfer. Here are a few terms to know.
Information about the Chase Slate® Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.