What Happens to Your Old Credit Card After a Balance Transfer?

Paying off your debt with a new credit card probably sounds easy. You just open up a new card, use it to pay off your other accounts and then it’s done, right?

Yes and no. Moving old debt to a new credit card, which is also known as making a balance transfer, is a complicated transaction that can result in you having to pay fees, racking up new interest charges and impacting your credit scores. Plus, you’ll have to figure out what to do with your old credit card(s) after the transfer. In most cases, the best option is to keep old accounts open but use them infrequently.

What is a Balance Transfer?

A balance transfer is a transaction that involves using a credit card to pay off your debt. In other words, you transfer one or more of your debts onto the credit card. To do this, you can use one of your credit cards that allows balance transfers, or you can open up a balance transfer credit card that gives you an initial period of 0% APR on the debt you transfer.

Jennifer Doss, credit card analyst and executive editor at CardRatings.com, says the best reason to use a balance transfer credit card is to help you pay off existing high-APR debt, interest free. “When used responsibly, balance transfer credit card offers can save people a lot of money on interest charges,” she explains.

Another good reason to consider a balance transfer is to reduce your monthly debt payments, but consolidating multiple accounts is an added benefit you might appreciate.

Just watch out for all of the confusing credit card policies before you jump in. Many creditors purposefully set up complicated rules for balance transfers, and they do this with the hopes that you’ll accidentally pay more money in fees. Each credit card is different, but here’s just a peek at the complicated terms you can expect:

• You’ll pay a flat balance transfer fee of either 3% or 5%. On a $5,000 transfer, that adds up to $150 or $250.
• A low balance transfer limit could prevent you from being able to transfer all of your debt.
• Balance transfer credit cards give you a 0% annual percentage rate (APR) on balance transfers for a limited period of time, but you could still be charged regular APR on purchases during that period.
• You may have a small window of time to make your balance transfer if you want a 0% intro offer to apply.
• After the introductory period, the APR on the remaining balance you owe from your transfer might be nearly 30%.
• If you make a late payment, you’ll forfeit your 0% APR offer and could have a penalty APR imposed.
• The transfer may take a few weeks to process. In the meantime, you may still have to make payments on your old accounts.

The Process of a Balance Transfer

Sure, you can rush through the process, but these are the steps you can take if you want to do a balance transfer in the safest and most cost-effective way:

1. Prioritize which debts you want to transfer and add up the balances. If you can’t transfer them all, focus on the accounts with the highest APR first.
2. Choose a credit card that has lower APR and affordable monthly payments for your transfer. If you’re using a 0% APR balance transfer offer, calculate how much you’ll have to pay each month to eliminate the full balance before the offer expires.
3. Make sure you understand the card’s terms before proceeding, including the rules regarding which debt you can transfer and the fees you’ll have to pay.
4. Follow the creditor’s process for requesting a balance transfer. You can usually do this during the credit card application or by logging into your pre-existing account.
5. Provide the creditor with the requested information, which usually includes full account numbers, the amounts you want to transfer and possibly the creditor’s billing address for payments.
6. Make sure your old accounts get paid off. The creditor might handle this step for you or send you a check.

What Happens to the Old Credit Card After the Balance Transfer?

Your old credit card will not automatically close after your balance transfer. That’s a good thing, since closing the card will likely cause your credit scores to drop. As long as the account is open, it will continue being reported to the credit bureaus and impacting your credit scores.

“There’s no harm in shoving the old card in the back of a drawer and forgetting about it once your balances are paid in full,” says Doss.

Just remember that charges can still be processed on the card, so you’ll still need to review your monthly account statements. By doing so, you can catch and address any unexpected activity that takes place. For example, you might find and cancel unwanted subscription fees that are being automatically charged to the card.

Impact on Your Credit Scores

Credit scores are based on many different details that appear in your credit reports. So when you make a balance transfer, and potentially add a lot of new information to your credit reports, the impact on your credit scores is hard to predict.

Initially, your scores will probably drop. That’s because every time you apply for a new credit card, you get a “hard inquiry” on your credit reports and your scores can drop by a few points. Opening a new account can also shorten your average length of account history, which might cause your scores to drop even further.

But as long as you make all of your debt payments when they’re due, and you leave your old credit cards open, you should notice an improvement in your credit scores over time. A balance transfer can also give you a way to reduce your debt faster, which reduces your credit utilization ratio and helps you accelerate your credit score growth.

Should You Close the Old Credit Card?

For the sake of your credit scores, you never want to close an old credit card without good reason. Keeping the account open means it can continue helping you build your scores in a few different ways:

• Adds to your total available credit and lowers your “credit utilization ratio”
• Adds more time to your average length of account history
• Adds more on-time payments to your credit reports, as long as you don’t miss any payments

However, an old card is worth closing if it’s doing you harm. If the card has an annual fee you can’t afford or it tempts you to take on more debt, consider closing the account.

Managing Multiple Credit Cards After a Balance Transfer

After you pay off old credit card debt, you’ll still have to manage the old accounts — assuming you don’t close them. The biggest mistake you can avoid at this point is accruing new debt on the cards. After all, you made a balance transfer in order to help you eliminate debt.

Additionally, you’ll need to ensure you keep the accounts in good-standing. You can do that with a combination of habits. For each card, make sure auto-pay is set up to cover the minimum monthly payment on each account. Then, review your monthly credit card statements to make sure there are no unexpected charges.

Best Practices Post-Balance Transfer

There are a lot of ways a balance transfer can go wrong. For example, if you don’t pay off the transfer amount before a 0% intro APR period ends, you could end up with sky-high interest charges.

Following these best practices will help ensure you don’t accidentally hurt your credit scores, pay extra fees or get into more debt once you initiate the transfer:

• Unless they have high annual fees, leave your old credit card accounts open so they continue to help you build your credit scores.
• Cancel automatic payments that will be billed to your old accounts.
• Cover any payments that are due on your old accounts before the transfer is complete.
• Review your account activity to make sure the transfers have gone through.
• Make a small purchase with each of your old credit cards every few months, and then pay the balance off right away. Doing so will prevent the accounts from being closed due to inactivity.
• Continue to monitor the activity on all of your accounts by reading the monthly account statements and reviewing your credit reports.
• Cover at least the minimum monthly payment due on the new card, but aim to pay the balance off ASAP. If you have an introductory offer, follow a clear plan to pay off the full transfer amount before the 0% APR period ends.

Balancing Your Next Move

Before you make a balance transfer, we recommend getting clear on your reason for making the move. Whether you want to pay off debt faster, save money on interest or consolidate accounts, a balance transfer isn’t the only way to do that, and there could be a better solution.

For example, you might get better results by enrolling on a Debt Management Plan, which involves working with a nonprofit credit counseling agency to consolidate your debt into one monthly payment, and it can help you reduce your interest rates. Some counseling agencies also offer debt settlement support, and they can counsel you on other options like using a loan to consolidate debt, or simply give you pointers for finding the best balance transfer credit card available.