What happens to your old credit card after a balance transfer?

Quick insights

• A balance transfer can be a strategic move to manage high-interest credit card debt, but it's important to understand the implications for both your old and new credit accounts.
• Managing your old credit card responsibly after a balance transfer could contribute positively to your credit score and financial health. 
• Each financial decision should align with your overall debt management strategy and long-term financial goals.

Balance transfer credit cards aren’t for everyone, but they might make sense if you hold a substantial amount of credit card debt and want a strategy to pay it down efficiently and potentially save on interest charges. But what happens to your old credit card after you transfer some, or all, of your outstanding balance to a new card?

Immediate effects after a balance transfer

When you initiate a balance transfer, you designate an amount of debt from your current credit card and move it to a new card. This new card typically offers lower interest rates (or sometimes 0% APR during an introductory period) or better repayment terms. The balance transfer process of moving debt from one card to another can take a few business days to complete.

You may also be charged a balance transfer fee, which can be charged as a flat rate or a percentage of the transferred amount, depending on the terms of your credit card. As the balance is transferred, your old credit card's balance decreases by the transferred amount. However, any residual balance not included in the transfer will remain and continue to accrue interest on the old credit card at that card’s interest rate.

It's important to monitor both accounts during the transition period. Continue making at least the minimum payments on your old card until the transfer is confirmed to help avoid late fees.

Should you cancel your old credit card after a balance transfer?

Before deciding to close the account, evaluate the benefits that the card provides, such as rewards or purchase protection, and consider how they fit into your overall financial plan. Canceling your old credit card post-transfer could affect your credit score by shortening your credit history and could impact your credit utilization ratio, which is the amount of credit you use compared to your credit limit.

If there are no high fees associated with keeping your old card, consider using it for small, regular purchases that you can pay off in full each month. Or, if you pay an annual fee on the card, you can ask your issuer if there’s an option to change your card to a different card that doesn’t have an annual fee. These strategies can help keep the card active and may contribute positively to your credit score by showing responsible credit usage.

Managing your new account after paying off the transferred balance

After you pay off the transferred balance on your new card, you'll continue to have access to the credit line for future use under the terms agreed with your credit provider. There are a few important things to consider when managing your new credit card account, such as:

• Credit score impact: Successfully paying off the transferred balance may improve your credit score by demonstrating responsible credit management and help to reduce your overall debt load over time.
• Interest rate changes: Many balance transfer credit cards offer a low introductory APR for a period of time. It’s important to keep track of when that introductory period ends and be aware of the interest rate that will apply to help avoid unexpected expenses on new purchases or future balances.
• Automatic payments: Consider setting up automatic payments for the new account to ensure timely payments. This can help maintain a good payment history, which is a significant factor in your credit score calculation. Missing a payment can also lead to forfeiting your low introductory interest rate on your new card.
• Additional benefits: Explore additional benefits and features of your new credit card, such as reward programs, cash back or travel perks. Utilizing these features wisely can add value to your everyday spending and may help enhance your overall financial strategy.

Additional considerations for credit management after a balance transfer

While a balance transfer can potentially help you reduce debt, save on interest charges and improve your financial situation, credit management doesn’t end after paying off that debt. Here are some additional items to consider:

• Credit report: Regularly review your credit report to ensure accuracy in reporting and to identify any areas that need attention, such as potential fraudulent activities or inconsistencies between your accounts.
• Credit score: One goal of a balance transfer credit card might be to help improve your credit score. There are many factors that contribute to your credit score, but the following three factors make up at least 80% of your score:
  • Amounts owed: Credit utilization ratio refers to your total debt relative to your total credit limit. For example, if you have a credit limit of $5,000 and hold $2,000 of debt, your credit utilization ratio is 40%. It is generally recommended to maintain a credit utilization ratio of 30% or lower, with 20% or lower being considered ideal.
  • Payment history: Your payment history is one of the most important factors in determining your credit score. A long history of on-time payments can contribute to a higher credit score.
  • Length of credit history: Age of credit refers to the age of your credit accounts. This could include the average age of your accounts, the age of your oldest account and how long it’s been since you opened a new account. Older accounts can positively impact your credit score, while a history of opening and closing multiple accounts could potentially harm your credit score. This is why you might want to consider keeping your old credit card account open after you transfer your balance to a new card.
• Budgeting: Creating and sticking to a budget could be one of the most impactful things you can do to manage your credit and financial health. Consider utilizing budgeting tools to maintain control over your spending, help prevent the accumulation of new debt and manage existing debts effectively.
• Financial advisor: If needed, consider consulting a financial advisor to help you tailor a personalized plan that aligns with your financial goals, especially if you are managing multiple credit accounts or significant debt levels.

Bottom line

Conducting a balance transfer can be a beneficial strategy for managing high-interest credit card debt, but it requires careful consideration of how to handle your old credit card. Keeping your old credit card active with responsible usage may help enhance your credit score, but closing it might be better depending on your situation. Always align your credit management practices with your broader financial objectives to help ensure a balanced and healthy financial future.