A balance transfer can be one of the most effective tools for reducing high-interest credit card debt while paying little or no interest, but only if this tool is handled with care.
It is especially important to proceed with caution if you are performing several balance transfers at the same time or if you are performing one balance transfer after another. Why? One of the main reasons: the offer of a balance transfer with low or no interest only lasts for a certain period of time. Many balance transfers offer a 0% APR during what’s called an introductory period, usually up to 21 months.
After the attractive interest rate of a balance transfer expires, a much higher APR kicks in. So if you don’t repay the transferred balance before the low-to-zero interest window closes, you you will again be obliged to pay a fairly high amount. interest rate on debt.
But if you manage transferred debt responsibly, even if you make multiple transfers, a balance transfer can be a smart move when trying to reduce or eliminate high-interest credit card debt. You may be able to get a balance transfer offer with a new or existing card.
As with so many other products in the credit card world, balance transfers come with both risks and rewards. Follow us to learn more about balance transfers, including risks and alternatives.
Can you make multiple balance transfers?
Yes, you can make multiple balance transfers. Multiple transfers may be possible from multiple cards to one card or even from multiple cards to multiple cards.
A transfer often involves the amount of money you borrow on one card being electronically applied to the balance of another card. You may also be able to cover debts other than credit cards by using a balance transfer check or a balance transfer deposit into a checking account.
Keep in mind that the number of balance transfers will likely be limited by the amount of credit available on a balance transfer card (subtracted from any existing balance). In some cases, balance transfer credit limits are lower than traditional card transaction credit limits.
Also, if you apply for several new balance transfer cards around the same time, your ability to borrow could be hampered by your creditworthiness. You may also be held back by a card issuer’s own rules about the number of balance transfers they allow.
What are the risks of multiple balance transfers?
Certain cardholders can and do perform multiple balance transfers for them. But if you’re considering multiple transfers, be sure to weigh these risks:
- Transfer fee. Fees for balance transfers are normally 3% or 5% of the transfer amount, with a typical minimum fee of $5 or $10. If you make multiple balance transfers, these fees may add up. “It’s important to consider these fees when looking to transfer the balance from one card to another, not just to consider the introductory interest rate,” says Jim Triggs, president and CEO of Money Management International, a non-profit consumer credit counseling agency.
- Credit applications. If you apply for multiple balance transfer cards at around the same time, each request from a credit card issuer will appear on your credit report. This could multiply the temporary and minimal impact of a credit inquiry on your credit score.
- More payments. So, let’s say you’ve been approved for a few new balance transfer cards. In the long run, this could help clear some or all of your high-interest credit card debt. But in the short term, that could mean tracking even more monthly bills.
- Not addressing the real problem. Of course, a balance transfer could ease your financial burden. But it may not help you solve serious financial problems, such as constant overspending.
“Balance transfers from one credit card to another can be a great way to save money on interest charges while paying off a credit card balance,” says Triggs. “However, if a consumer uses balance transfers to systematically move balances from one card to another in order to avoid making payments on the card or at least defer payment for a period of time, they will end up experience problems.”
If you take advantage of balance transfers, Triggs advises paying attention to the end of the low or interest-free interest period and the interest rate if you haven’t repaid the transferred balance before the period expires.
For example, you can enjoy 0% for 15 months. But after 15 months, the APR on the transferred balance will climb to the usual higher rate, which will likely be in the double digits. As of October 12, the average credit card interest rate was 18.67%.
When it comes to balance transfers, paying fees and potentially paying higher interest rates “are pitfalls that aren’t commonly seen,” says credit counselor Jeanne Kelly.
Balance Transfer Alternatives
While a balance transfer can be a great option for reducing your high-interest debt, it’s not the only option. Here are four alternatives to balance transfers.
- Budgeting. Getting high-interest debt under control can be summed up in one simple step: creating a monthly budget. A monthly budget tracks your regular income and expenses, such as rent, credit card payments, loan payments, and utilities. You may decide to budget the old-fashioned way, with pencil and paper. Or you can turn to technology, either a budget spreadsheet or a budgeting app.
- Debt consolidation. You may be able to combine several high-interest debts into one debt consolidation loan (and one monthly payment). If you go this route, aim for an interest rate on the loan that will save you money on interest charges.
- Debt advice. A nonprofit consumer credit counseling agency can review your finances, work with you to establish a monthly budget, and offer solutions to ease your debt burden. One of these solutions could be a debt management plan. This type of plan is designed to pay off unsecured debt, such as credit cards, at lower interest rates. You make one monthly payment over a period of up to five years to clear the debt.
- Debt relief. A for-profit debt relief company promises to negotiate with your creditors to reduce the amount of debt you owe (usually unsecured debt like credit cards). Personal Finance Experts prevent that debt relief is a last resort because of the many drawbacks, such as high fees, possible scams, and potentially severe damage to your credit score.
How to Break the Cycle If You’re on a Second Balance Transfer
While multiple balance transfers can be a good approach to reducing high-interest debt, they can also mask a deeper problem with your finances.
“You can’t borrow to get out of debt. Moving balances for better interest rates may help temporarily, but it won’t solve your debt problems if you have too much overall debt,” says Triggs.
So how can you get the cycle of second, third or fourth balance transfers?
Triggs recommends having (and sticking to) a plan to pay off your high-interest debt, which may involve a balance transfer but doesn’t necessarily depend on it.
“A consumer is never guaranteed to open a new line of credit to transfer balances. If the economy deteriorates and credit tightens further, new lines of credit, especially for struggling consumers, might be harder to find,” he says.
Kelly says you need to prioritize debt reduction in order to escape the cycle of balance transfers. If you’re not aggressive about paying off a transferred balance, “the debt will continue to grow,” she says.
Consider a debt consolidation loan
One element of your debt reduction plan could be a debt consolidation loan (a type of personal loan), says Triggs. But that’s only if you qualify for a loan with a lower interest rate than your credit card or cards.
A debt consolidation loan gives you “the ability to make the same payment each month at a fixed interest rate with a fixed loan term, typically between 36 and 60 months,” he says.
If a debt consolidation loan isn’t available, Triggs suggests seeking help from a nonprofit consumer credit counseling agency like Money Management International.
The bottom line
A balance transfer lets you pay off your debts without worrying too much about double-digit interest rates. Ultimately, a balancer transfer can help keep your credit healthy.
But if you’re used to transferring your balance frequently, you may need to go beyond what a financial band-aid is to diagnosing and treating more serious financial injuries. Fortunately, options like debt consolidation loans and debt counseling can help resuscitate your credit.