Getting a Balance Transfer? Do This First

Balance transfer credit cards offer a way to reduce the interest rate on your credit card debt. These cards provide a 0% promotional interest rate for a period of time -- usually 12 months or 15 months -- on debt that you transfer to that card from another one. You'll generally pay around a 3% to 5% fee to transfer your balance, but then will not pay interest at all during the promotional period.

During the time when you're not paying interest, every dollar of the payment you make goes toward reducing your outstanding loan balance. This can make debt payoff easier. As a result, a balance transfer is a smart choice for many people who owe money on credit cards.

But if you're considering a balance transfer, there's one thing that you need to do first.

Do this before moving forward with a balance transfer

Before you move forward with a balance transfer, you'll want to take the important step of calculating how much you would need to pay every month out of your checking account to have your debt paid off before the promotional rate expires.

This is going to vary depending on the terms of the promotional offer, as well as how much debt you are actually transferring over.

Say, for example, you pick one of the best balance transfer cards available. One example is the Wells Fargo Reflect® Card (see rates and fees). It has a $0 annual fee and provides a 0% intro APR, 21 months from account opening on qualifying balance transfers for balance transfers made within 120 days of opening the account. (After that intro period, the go-to 18.24%, 24.74%, or 29.99% Variable APR applies.) The card comes with a balance transfer fee of 5%, min: $5, but you get a long time with no interest.

Now, to determine how much you'd have to pay each month to repay your transferred balance, just divide the amount you're transferring over (plus the fee) by 120 days. So:

• If you transferred over $5,000, you would end up with a balance of $5,250.
• To pay that off in 21 months from account opening on qualifying balance transfers, you would need to make payments of $250 per month.

If you are not able to pay that amount, you would get stuck with a remaining balance that you'd have to pay interest on at the card's standard rate.

Apply now for the Wells Fargo Reflect® Card.

READ MORE: How Does Credit Card Interest Work?

Other cards have different fees and promotional periods. But be sure to do this exercise with any card you're considering to find out exactly how much you'll have to pay over the course of your promotional period to avoid getting stuck paying the higher rate.

Make a plan for what happens after the promotional period ends

If you aren't confident that you will pay off the full transferred balance before the promotional period ends, you'll need a plan.

You could keep paying off the card at the higher standard rate. If this higher standard rate is similar to the interest charges you were facing on the card you transferred the balance from, then you're no worse off. In fact, you got a period of time when you didn't have to pay interest, so you should be in a better position.

But if the card you transferred the balance to charges a higher rate of interest, it's possible you could end up paying more over time if you have a large amount outstanding when the promotional period ends. In this case, the balance transfer offer may not be right for you.

You may also have the option to transfer any remaining balance again to a new credit card with a new promotional offer. But there's no guarantee this will be an option every time, as you may not qualify for a new offer.

Ultimately, your best bet is to try to pick a balance transfer card that has a long-enough promotional period you will be able to repay the debt in full before interest starts being charged. If that's not the case, be sure to compare the standard rate on the new card versus the old one to make sure you won't end up paying more in the long run.