Balance transfers are a great tool to eliminate costly credit card debt, but they do come with limitations, and I mean that literally. There is a balance transfer limit that determines how much you can actually transfer.
Similar to the credit cards you already carry, credit card balance transfers also have credit limits. Why? Because when it comes down it, they’re also credit cards. Simple as that.
So when you accept a balance transfer offer, you’ll be presented with a balance transfer limit, which works in the same fashion as the credit limit tied to your credit card.
The balance transfer limit is very important as it dictates how much debt you can transfer, which could make or break your decision.
Let’s look at an example of a balance transfer limit:
Balance transfer offer: 0% APR for 12 months
Balance transfer limit: $5,000
Current credit card debt A: $4,500@19.99% APR
Current credit card debt B: $3,000@9.99% APR
Balance transfer fee: 3%
In the above scenario, your $5,000 balance transfer limit would prevent you from transferring all of your existing high-APR credit card debt via the 0% APR balance transfer.
You’d only be able to transfer $5,000, leaving $2,500 on one of your old credit cards.
In fact, the total amount you could transfer would likely be limited to something like $4,850, allowing for some cushion between your credit limit to account for balance transfer fees.
Banks generally allow balance transfer amounts up to the credit card’s available credit limit less the balance transfer fee, which is often 3%. If it’s a no fee offer, you should be able to use the entire balance.
If you made a request to move the full amount up to your balance transfer limit, the first request, let’s assume credit card debt A because the APR is higher, would be paid off in full and $350 would be knocked off credit card debt B.
You’d be left with a scenario like this:
Credit card debt B: $2,650@9.99% APR
New credit card debt: $4,850@0% APR
Balance transfer fees: $145.50
This setup would certainly save you money, but it would really be in your best interest (no pun intended) to find a credit card balance transfer offer that had a limit high enough to cover all your existing debt.
Having all you debt transferred to one credit card would certainly make it easier to keep track of, and subsequently pay down. However, you could always transfer the remaining debt to a second balance transfer credit card.
Tip: If your balance transfer limit isn’t large enough to settle all of your existing credit card debt, balance transfer requests will be processed in the order you list them, so make sure you list the highest APR debts first! This will save you money in the event your limit doesn’t cover all your debt.