Balance Transfer Problems and Pitfalls


Balance transfers are a great tool to manage and consolidate debt, and help you avoid paying costly finance charges each month.

But there are a number of balance transfer problems and pitfalls that should be considered as well.

Balance Transfer Problems/Pitfalls

  • The opening of new credit cards may lower your credit scores
  • You need good credit to get approved for the best offers
  • Many offers come with balance transfer fees that increase your debt
  • They can take time to process (not good if you’re in a bind)
  • Your options might be limited, especially if you’ve already taken advantage of them several times
  • There are limits to how much you can transfer
  • You could just continue to carry debt thinking you’ll never have to pay it off

Balance Transfers Can Lower Your Credit Score

When you apply for a credit card balance transfer, it typically counts as a hard credit inquiry, otherwise known as a request for new credit.

As a result, your credit score may go down, at least temporarily. Other creditors see requests for new credit as a sign of weakness, because it appears as if you need a little help from the bank.

This may not be the case, but the more requests you make in a shorter period of time, the more impact they will have on your credit score.

Someone who continuously transfers credit card balances will eventually be perceived as a higher default risk because creditors will assume they aren’t able to actually pay off their debt. So use balance transfers sparingly.

Balance Transfer Fees Add Up

This drawback is pretty self explanatory. Many balance transfer offers come with fees, especially those ever-popular 0% APR balance transfers.

These fees guarantee that the credit card issuers make some money for taking on your debt, in the event you simply take advantage of their 0% APR promotion and then quickly move on without paying a single finance charge.

Of course, there are still no fee balance transfer credit cards out there if you look hard enough. And it’s sometimes possible to get the balance transfer fee waived.

And even then, the savings could easily outweigh the upfront fee, so it might not matter all that much.

Balance Transfers Take Time

There aren’t any so-called “instant balance transfers” kicking around. They take time, even if it’s just a few business days.

The one exception is a balance transfer check, which works fairly instantaneously. However, most of the deposit will typically be on hold for several days to a week, depending on the amount.

This can be problematic if you’re looking to avoid paying interest. And your credit card issuer could hit you with a late fee if you think the balance transfer was accepted and the associated balance was subsequently paid off.

Always make sure you continue to make at least the minimum payment on your existing credit card(s) to avoid any unintended fees or penalties instead of just assuming the balance has already been paid in full.

Balance Transfers Are Limited

Another problem with balance transfers is the associated balance transfer limit, which may leave you between a rock and hard place.

If you have $5,000 in credit card debt that you’d like to transfer, but the new balance transfer card only has a credit limit of $3,000, you might be in trouble.

Sure, you can still transfer some of the high-interest credit card debt, but it’s not ideal, assuming you were planning to move all the debt to avoid paying interest.

Now you’ve got to come up with a new plan to transfer or pay off the debt. And that could cost you.

You Could Be Rejected

Worse yet, you could be flat out rejected by a credit card issuer for any number of reasons.

If you don’t have the necessary credit score for a balance transfer, you can look into offers that allow for bad credit. But these often aren’t ideal.

Perhaps a balance transfer to another person will do the trick if someone you know and trust (with better credit) can help you out.

Alternatively, you can look at balance transfer options for existing customers.

There are workarounds, but if you abuse the system, you might run out of options before long.

Remember, your unique financial situation will determine whether a balance transfer is a good idea or not.

Sure, they’re probably a much better alternative than a cash advance, but they’re are still plenty of problems and pitfalls that should be considered and avoided.

Read more: Take a look at the many balance transfer benefits.

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