Considering a no-interest balance transfer offer? Here are the pros and cons of balance transfers and whether moving debt multiple times can help or hurt you.

17 minute read

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When you download the app or visit simplified money.com, that’s S I M P L I F money.com. Hey everyone. This is the money girl podcast and I’m Laura Adams.

I’ve been hosting the show since 2008,  and I’m also the proud author of a new book, money, smart solo preneur, a personal finance system for freelancers entrepreneurs and side hustlers.

It officially goes on sale. Everywhere books are sold on September 22nd. I’m really excited about this book because I truly believe it can help. A lot of people who are thinking about creating a business, whether it’s to earn more income, create a better or different lifestyle, or just stretch their entrepreneurial muscles on the side of a day job or full time.

So I hope you’ll check it out. There is a small but mighty team that runs this podcast and the entire quick and dirty tips network of podcasts. And one of the key players is Karen Hertzberg. She’s the editor and content strategist for the network. Karen sent me an email. She’s got a friend named Heather who listens to the podcast and has a question.

She thought it would be a great podcast topic and sent it to me, of course. And here’s what Heather says. She says I had a financial crisis and ended up with $2,500 on my new credit card, which had a no interest promotion for 18 months.

When I got it. That promotional rate is going to expire in a couple of months. I have good credit and I keep getting offers from other card companies for zero interest balance transfer promotions. Would it be a good idea to apply for another card and transfer my balance? So I don’t have to pay any interest. Are there any downsides that I should watch out for Heather? This is a great question. Thank you so much. Thanks to Karen for sending it my way. I’m sure there are many other podcasts listeners who are also wondering if this is a good idea.

Many of us have used balance transfer cards and yeah, I mean, if you don’t pay it off in time, you’re kind of left, scratching your head. Wondering what do I do? So we’re going to talk about what a balance transfer credit card is, how they can make paying off high interest debt easier, and some tips to handle them the right way. You’ll learn pros and cons of doing multiple balance transfers and some mistakes that you and Heather should avoid.

You’ll find the notes for this and every show in the money girl section@quickanddirtytips.com. This is episode number 653 called should you transfer balances to no interest credit cards multiple times, if you’re not familiar with a balance transfer credit card, they’re also called no interest or zero interest credit cards. And it’s simply a feature of a credit card that includes an offer for you to transfer balances from other accounts in order to save money for a limited period.

And of course the card is hoping that you’re not going to pay it off in time and that you’ll maintain a balance and then they’ll make some money off of your interest. So this could be a brand new card that you apply for, as Heather mentioned, uh, you know, she’s getting offers in the mail. Many of you are probably getting offers in the mail, but it may also be a feature of an existing credit card that you already have. Like a discover is one that comes to mind.

They’ve always got balance transfer offers for existing card members that you can take advantage of. So whether you’re getting a brand new card or using an existing card, you know, the pros and the cons and all the things that we’re going to talk about here remain the same. And the deal is you typically pay an annual percentage rate of 0% during a promotional period.

And it might range from six months, maybe up to 18 months. I think some of the very best or longest offers I’ve seen may range up to 24 months. And in general, you do need to have good credit to qualify for the very best transfer deals.

Every transfer offer is a little different because it depends on the issuer that is giving you the offer depends on your financial situation, but in general, the longer the promotional period, the better we’ll talk about some other factors to look out for. And during that promotional period, you don’t accrue one penny of interest until the promotion expires. Now you do have to pay a transfer fee. This is the only cost of doing a transfer and the range of fees might be somewhere from 2% up to 5%. There might be 0% offers. Occasionally if you see that, you know, that’s pretty rare.

That’s a great, let me give you an example of a typical situation. Let’s say you transfer a thousand dollars to a transfer card that comes with a 2% transfer fee. You would be charged $20. That’s 2% of the amount that you’re transferring and that’s going to automatically increase your debt to $1,020. So they just tack on that transfer fee to your balance. So you do want to choose a transfer card with the lowest transfer fee possible.

And also if it comes with no annual fee, that’s a great feature as well. So you’re going to want to look at all of these factors when you’re choosing a, you know, which balance transfer card that you want to take advantage of when you get approved for a new card, you get a credit limit just like you do with other credit cards. So you can only transfer amounts up to that credit limit.

You can use a transfer card for just about any type of debt, such as credit cards, auto loans, personal loans. The issuer may give you the option to have your funds deposited into your bank account so that you can send it to the creditor of your choice. So let’s say you get approved for a thousand dollar balance transfer.

The card may just send you a thousand dollars and less. You pay, you know, the account off, whether it’s a credit card or the auto loan, they may let you do it yourself. Or you might be asked to complete an online form that indicates exactly who you, you want to pay and the account number, her and all of that information, so that the transfer card company, I can pay the other balance on your behalf. So it’s going to vary depending on the issuer, how the process works and I’ve, you know, used transfer cards that do both types.

Once the transfer is complete, the debt balance moves from whatever account you pay off to your transfer card account. And as I mentioned, any transfer fee will get added, but even though no interest accrues on your account, you still got to make monthly minimum payments throughout their promotional period.

Okay? If you miss a payment that is going to seriously affect you, and it could literally take that 0% APR and swap it out with a default APR that could be as high as 29.99%, that could easily wipe out any of the benefits that you hope to gain. I’m doing a balance transfer in the first place. So you do need to make those payments on time, time during the promotional period, just like you do with a regular credit card. Now, a common question that I get about balance transfers is how they affect your credit.

One of the most significant factors in your credit scores is something you’ve probably heard me talk about before called your credit utilization ratio. This is the amount of debt that you owe on revolving accounts and revolving accounts could be like credit cards or lines of credit, what you owe compared to your available credit limits.

For example, if you have $2,000 on a credit card and an $8,000 credit limit, you’re using one quarter of your limit. So 2000 compared to 8,000 would give you a 25% credit utilization ratio. This important ratio gets calculated for each of your revolving accounts. And as a total, an aggregate on all of them, I recommend using no more than 20% of your available credit to build or maintain optimal credit scores. Having this low utilization ratio shows that you can use credit responsibly without maxing out your accounts. So you want to keep that utilization in mind when you’re using a balance transfer.

So if they give you an $8,000 credit line, and all of a sudden you transfer an $8,000 balance, you’re maxing out that offer, and that can work against you. Anytime you get a new credit card or a new line of credit that instantly raises your total available credit while your debt level remains the same, that causes your utilization ratio to plummet boosting your scores.

Likewise, the opposite is true when you close a credit card or close a line of credit when that credit line dries up, but you’ve still got the same amount of debt. It becomes a greater percentage of your available credit. So I’m telling you this in order to make you understand that if you transfer a card balance and you close that old account, let’s say an old credit card that will reduce your total available credit, which spikes your utilization ratio and constitutes your credit scores to drop.

So my big piece of advice when it comes to credit is if you’re transferring a balance to pay off a card, you may not want to close it. It’s going to depend on your financial goals and your situation only cancel a paid off card. If you’re prepared to see your, your scores, take a little Deb.

Now a better decision may be to simply file away that card or to use it sparingly for purchases that you pay off in full each month. You know, if you’re looking at buying a home, buying a car, making an important credit related decision within, let’s say the next six months, maybe the next year, you don’t want to jeopardize your scores in any way. So if you did close a credit card that could work against you, another factor that plays a small role in your credit scores is the number of recent inquiries that you make for new credit.

So if you apply for a new transfer card, that’s going to typically cause a slight short-term dip in your credit. Now having a temporary ding on your credit, usually isn’t a problem. And again, it is temporary unless you’ve got plans to finance, a big purchase, like a house or a car within the next few months. So again, you don’t want to do anything to jeopardize your, your credit scores. If you’re making a big purchase.

Now, if you have no big purchases on the horizon, then canceling that old credit card after you transfer the balance off of it may not be any big deal for you. The takeaway is that if you don’t close a credit card after transferring a balance to a new account and you don’t apply for any other new credit accounts around the same time, the net effect should actually raise your credit scores.

Not hurt them because you’re actually getting more available credit in your name. I’m done many zero interest balance transfers because they save money. When you use them correctly. It’s a really good strategy.

If you can pay off the balance before the offers expiration date, let’s say you’re having a good year at work and you expect to receive a bonus within the next few months that you can use to pay off a credit card balance. Instead of waiting for the bonus to hit your bank account, you could use a no interest transfer card to pay off your balance. That will cut the amount of interest that you’ve got to pay during the card’s promotional period with Halloween right around the corner. Lots of us are excited for spooky, scary, fun, but here’s one thing that shouldn’t scare you. Life insurance policy genius is an easy to use life insurance marketplace that makes insurance shopping a breeze.

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But what if you’re like Heather, and you will not pay off a no-interest promotional offer before it ends well carrying a balance after the promotion means that your interest rate is going to go back up to the cards standard rate, which could actually be higher than what you were paying before the transfer, just depending on the card company and what their terms are. So doing another transfer to defer interest for an additional promotional period can actually make a lot of sense. However, it may only be possible if you’re like Heather and you’ve got good credit to qualify.

Remember I said, balance transferred cards and promotions are typically only offered to consumers with good or excellent credit. If you make a second or a third balance transfer, and you’re not making any progress toward paying down your debt, this can become a shell game. And don’t forget about that transfer fee that you typically have to pay that gets added to your outstanding balance.

While avoiding interest is definitely a good move, creating a solid plan to pay down your debt is even better. If you have a goal to pay off your card balance, and you find a reasonable transfer offer, there’s no harm in using a balance transfer to cut your interest while you regroup, even if you have to do it a few times.

So, you know, my advice for Heather is if she definitely cannot pay that balance off, yes. Going ahead and doing another balance transfer is a good idea. So let’s review a few advantages of using a balance transfer credit card. The first is the most obvious reducing your interest. This is the whole point of transferring your debt. It allows you to save money for a limited period. Even after paying a transfer fee, paying off debt faster. If you put the extra savings from doing a balance transfer toward your balance, you can eliminate debt a lot more quickly and boosting your credit.

This is a nice side effect. If you open a new balance transfer card and instantly have more available credit in your name, which as I explained, lowers your credit utilization ratio and boost your scores. Here are some disadvantages of doing a balance transfer. The main one is paying a fee. As we mentioned, this is standard with most cards, which are going to charge in the range of two to 5% of the balance that you transfer, paying higher interest.

This could happen when the promotion ends and you stick with that same card. Your rate will vary by issuer and your financial situation, but it could spike dramatically and giving up student loan benefits. This is a big downside. If you’re considering using a transferred card to pay off federal student loans, if they come with any repayment or forgiveness options, what’s that debt gets transferred to a balance transfer credit card.

All those loan benefits go away, including a tax deduction that you can get on interest on a student loan that no longer applies. So be very careful about moving student loan debt to any type of credit card. The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires, or to be sure that the interest rate will be reasonable after the promotion ends shifting a high interest debt to a no interest transfer account is a smart way to save money.

It doesn’t make your debt disappear, obviously, but it does make it less expensive for a period. And that can help you regroup and get your financial life organized. If you can save money during the promotional period, despite any balance transfer fees, you’re going to come out ahead. And if you plow your savings from not having to pay any interest back into that balance, instead of spending it, you’ll get out of debt faster than you may have thought possible.

Thanks again to Heather for sending in this question and for Karen to forwarding it. I hope this has been helpful. If you want to learn more about my new book, money, smart solo preneur, or you have a money question or comment, you can use my contactPage@lauradadams.com to send me an email. I’d also love to hear your voice on our message line.

Just call (302) 364-0308. That’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is produced by the audio wizard, Steve Ricky Berg with editorial support from Karen Hertzberg. If you’ve been enjoying the podcast, please rate and review it on Apple podcasts. We read all of your reviews. We thank you in advance. It’s really an easy, free way to give back and show your support for the show. You might also like the backlist episodes and show notes that are always available@quickanddirtytips.com.

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Karen, our editor at Quick and Dirty Tips, has a friend named Heather who listens to the Money Girl podcast and has a money question. She thought it would be a great podcast topic and sent it to me.

Heather says:

I had a financial crisis and ended up with a $2,500 balance on my new credit card, which had a no-interest promotion for 18 months when I got it. That promotional rate is going to expire in a couple of months. I have good credit, and I keep getting offers from other card companies for zero-interest balance transfer promotions. Would it be a good idea to apply for another card and transfer my balance so I don’t have to pay any interest? Are there any downsides that I should watch out for?

Thanks, Karen and Heather! That’s a terrific question. I’m sure many podcast listeners and readers also wonder if it’s a good idea to transfer a balance multiple times.

This article will explain balance transfer credit cards, how they make paying off high-interest debt easier, and tips to handle them the right way. You’ll learn some pros and cons of doing multiple balance transfers and mistakes to avoid.

What is a balance transfer credit card or offer?

balance transfer credit card is also known as a no-interest or zero-interest credit card. It’s a card feature that includes an offer for you to transfer balances from other accounts and save money for a limited period.

You typically pay an annual percentage rate (APR) of 0% during a promotional period ranging from 6 to 18 months. In general, you’ll need good credit to qualify for the best transfer deals.

Every transfer offer is different because it depends on the issuer and your financial situation; however, the longer the promotional period, the better. You don’t accrue one penny of interest until the promotion expires.

However, you typically must pay a one-time transfer fee in the range of 2% to 5%. For example, if you transfer $1,000 to a card with a 2% transfer fee, you’ll be charged $20, which increases your debt to $1,020. So, choose a transfer card with the lowest transfer fee and no annual fee, when possible.

When you get approved for a new balance transfer card, you get a credit limit, just like you do with other credit cards. You can only transfer amounts up to that limit.

You can use a transfer card for just about any type of debt, such as credit cards, auto loans, and personal loans. The issuer may give you the option to have funds deposited into your bank account so that you can send it to the creditor of your choice. Or you might be asked to complete an online form indicating who to pay, the account number, and the amount so that the transfer card company can pay it on your behalf.

Once the transfer is complete, the debt balance moves over to your transfer card account, and any transfer fee gets added. But even though no interest accrues to your account, you must still make monthly minimum payments throughout the promotional period.

Missing a payment means your sweet 0% APR could end and that you could get charged a default APR as high as 29.99%! That could easily wipe out any benefits you hoped to gain by doing a balance transfer in the first place.

How does a balance transfer affect your credit?

A common question about balance transfers is how they affect your credit. One of the most significant factors in your credit scores is your credit utilization ratio. It’s the amount of debt you owe on revolving accounts (such as credit cards and lines of credit) compared to your available credit limits.

For example, if you have $2,000 on a credit card and $8,000 in available credit, you’re using one-quarter of your limit and have a 25% credit utilization ratio. This ratio gets calculated for each of your revolving accounts and as a total on all of them.

I recommend using no more than 20% of your available credit to build or maintain optimal credit scores. Having a low utilization shows that you can use credit responsibly without maxing out your accounts.

Getting a new balance transfer credit card (or an additional limit on an existing card) instantly raises your available credit, while your debt level remains the same. That causes your credit utilization ratio to plummet, boosting your scores.

Likewise, the opposite is true when you close a credit card or a line of credit. So, if you transfer a card balance and close the old account, it reduces your available credit, which spikes your utilization ratio and causes your credit scores to drop.

So, only cancel a paid-off card if you’re prepared to see your scores take a dip. A better decision may be to file away a card or use it sparingly for purchases you pay off in full each month.

Another factor that plays a small role in your credit scores is the number of recent inquiries for new credit. Applying for a new transfer card typically causes a slight, short-term dip in your credit. Having a temporary ding on your credit usually isn’t a problem, unless you have plans to finance a big purchase, such as a house or car, within the next six months.

The takeaway is that if you don’t close a credit card after transferring a balance to a new account, and you don’t apply for other new credit accounts around the same time, the net effect should raise your credit scores, not hurt them.

When is using a balance transfer credit card a good idea?

I’ve done many zero-interest balance transfers because they save money when used correctly. It’s a good strategy if you can pay off the balance before the offer’s expiration date.

Let’s say you’re having a good year and expect to receive a bonus within a few months that you can use to pay off a credit card balance. Instead of waiting for the bonus to hit your bank account, you could use a no-interest transfer card. That will cut the amount of interest you must pay during the card’s promotional period.

When should you do multiple balance transfers?

But what if you’re like Heather and won’t pay off a no-interest promotional offer before it ends? Carrying a balance after the promotion means your interest rate goes back up to the standard rate, which could be higher than what you paid before the transfer. So, doing another transfer to defer interest for an additional promotional period can make sense.

However, it may only be possible if you’re like Heather and have good credit to qualify. Balance transfer cards and promotions are typically only offered to consumers with good or excellent credit.

If you make a second or third balance transfer but aren’t making any progress toward paying down your debt, it can become a shell game. And don’t forget about the transfer fee you typically must pay that gets added to your outstanding balance. While avoiding interest is a good move, creating a solid plan to pay down your debt is even better.

If you have a goal to pay off your card balance and find reasonable transfer offers, there’s no harm in using a balance transfer to cut interest while you regroup.

Advantages of doing a balance transfer

Here are several advantages of using a balance transfer credit card.

  • Reducing your interest. That’s the point of transferring debt, so you save money for a limited period, even after paying a transfer fee.
  • Paying off debt faster. If you put the extra savings from doing a transfer toward your balance, you can eliminate it more quickly.
  • Boosting your credit. This is a nice side effect if you open a new balance transfer card and instantly have more available credit in your name, which lowers your credit utilization ratio.

Disadvantages of doing a balance transfer

Here are some cons for doing a balance transfer.

  • Paying a fee. It’s standard with most cards, which charge in the range of 2% to 5% per transfer.
  • Paying higher interest. When the promotion ends, your rate will vary by issuer and your financial situation, but it could spike dramatically. 
  • Giving up student loan benefits. This is a downside if you’re considering using a transfer card to pay off federal student loans that come with repayment or forgiveness options. Once the debt gets transferred to a credit card, the loan benefits, including a tax deduction on interest, no longer apply.

Tips for using a balance transfer credit card wisely

The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires. Or be sure that the interest rate will be reasonable after the promotion ends.

Shifting a high-interest debt to a no-interest transfer account is a smart way to save money. It doesn’t make your debt disappear, but it does make it less expensive for a period.

If you can save money during the promotional period, despite any balance transfer fees, you’ll come out ahead. And if you plow your savings back into your balance, instead of spending it, you’ll get out of debt faster than you thought possible.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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