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.

Don’t Balance Transfer Disputed Charges

Here’s another one.

The credit card issuers warn you themselves about this common problem if you read the fine print.

I dug down into Citibank’s disclosures, and found the following line:

“You should not transfer the amount of any disputed purchase or other charge. If you do, you may lose your dispute rights.”

In other words, if you’ve got an outstanding balance on a old credit card that you’re currently arguing about, leave it be before even thinking about moving it to another credit card via a balance transfer.

Let’s look at an example:

Credit card balance: $5,000
Disputed balance: $500
Balance transfer offer: 0% APR for 15 months

While the 0% APR balance transfer offer may be tempting, be sure to leave that disputed $500 on the old credit card if you’re actively fighting it.

Once it’s transferred to the new card issuer via balance transfer, you’ll probably be out of luck.

Think of it this way – a balance transfer is essentially a payment, so if you agree to let another card issuer pay off that balance in full, the original card issuer will probably assume you’re accepting full responsibility for the entire balance.

Continue Making Payments During a Balance Transfer

Another common problem is missing a payment on your old credit card after making a balance transfer request.

Let’s look at an example:

Credit card balance: $2,500
Credit card payment due date: August 10
Balance transfer request date: August 1

If you plan on moving $2,500 from one credit card to another via a 0% APR balance transfer, make sure it is actually completed before your next minimum payment due date.

In the case above, the credit card issuer may not complete the balance transfer request for 10 business days (how long do balance transfers take?).

So if you don’t make at least the minimum payment, you’d be hit with a late fee and possibly a credit score ding.

While a balance transfer does count as a payment, it will mean very little if it isn’t made on time.

Don’t ever assume the credit card company will complete your request within a certain period of time. It is ultimately your responsibility to make sure your bill is paid on time.

Tip: To avoid overpayment without actually missing a payment, monitor the status of your balance transfer by logging into your old credit card account daily to see if the new card issuer has made the balance transfer payment.

Don’t Use a Balance Transfer to Pay Off the Mortgage!

For some reason, certain people out there seem to think it’s okay to make their mortgage payments with a credit card.

While there are (possibly were) a few services out there that allow you to pay your mortgage with a credit card, it doesn’t make a lot of sense.

Credit cards tend to have variable interest rates, and if you miss a payment, the APR may skyrocket to the default rate, which is generally in the high 20%s.

Sure, you might have 0% APR for 12 months or longer, but what happens after that? And what about the balance transfer fees.

There are also minimum payments to consider folks.

It’s not too smart to charge up a ton of money on your credit cards just because you think you can earn money elsewhere.

Balance transfer credit cards should be reserved for those looking to lower their APR, not to play a game of arbitrage.

So as a rule of thumb, use balance transfers only to pay off other high-APR debt, like credit card balances.

Never use them to rack up more debt, as the future is always uncertain.

Simply put, take the time to think before you transfer!

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

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