Big balance transfers may run into limits


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
We have been out of work for awhile so are considering a balance transfer on my husband's two cards to some other card. I have always paid my balances each month but he has paid only minimums. We are looking to sell our property so if we had an 18-month, 0% interest rate, it might carry us until we have the sale to pay off the cards. But he has racked up $27,000 in debt.  Any advice?  – Gretchen


Dear Gretchen,
First let me congratulate you on the way you have used your personal credit cards. Credit cards can be a great financial tool when used responsibly, which you have done by paying off your balances each month. Unfortunately, they can also become a problem if one chooses to make only minimum payments. This is, as you and your husband well know, the path to racking up debt, especially when a job loss or other unforeseen financial emergency occurs.

Zero-percent balance transfer offers can be a solution, but there are some big “ifs” to consider for your husband. The No. 1 “if” will be if he can actually qualify for a 0-percent balance transfer. Your husband may be getting these types of offers, but the bigger “if” will be if he is actually offered enough credit to move the entire $27,000. If those two things happen, you must consider the third “if” in regards to the sale of your property. 

Let’s first look at balance transfer options. We will assume that his credit history is good enough for him to qualify for a 0-percent interest balance transfer credit card. Having a loan at no interest does not mean that it will be free. You must take into account the balance transfer fee, which is generally around 3 percent or 4 percent.  That’s $810 to $1,080 to add to the $27,000 transfer.  Granted he would probably be paying at least that much in interest if he leaves it where it is now. This also assumes he can qualify for the entire amount, which is substantial. If not, moving part of the balance may help but then he will need to decide how to pay the amount that is not transferred. 

I would not recommend applying for a second offer, because he could very well run into the same problem of not being able to move it all. Multiple hard credit inquiries, which are what these would be, can bring down a credit score in a hurry. This is true whether or not he is approved. 

The ideal solution, of course, will be if the sale of your property goes forward as planned and you use part of those funds from the sale of your property to pay off the debt, whether it has been transferred or not. At that point, I hope that your husband will follow your example when it comes to handling any future credit card debt.

Another solution might be to contact a nonprofit credit counseling agency. A good counselor will help determine all of the options for handling this debt after completing a free financial evaluation. A balance transfer may be one option, but it is certainly not the only one. You can find a qualified agency through the National Foundation for Credit Counseling.

Be sure to always use your credit smarts!

See related: Balance transfer survey reveals fees, costs

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Published: April 23, 2016

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Updated: 10-20-2016

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