Too many credit card balance transfers can be a bad idea

By Jeremy M. Simon

Balance transfer credit cards, which enable consumers to shift high interest credit card debt to a lower interest credit card, are an excellent tool for anyone looking to cut costs as they pay off their debt. However, a repeated pattern of transferring from one balance transfer credit card to the next each time the introductory annual percentage rate expires can be a bad idea. While such a strategy will enable the credit cardholder to temporarily avoid paying interest on their existing debt, it can present some other hazards over time. 

Cardholders need to realize that a balance transfer strategy may not be able to be carried out indefinitely. For one thing, there is a danger you could eventually stop getting approved for balance transfer credit cards, which could leave you stuck holding debt at a much higher interest rate when the APR on your latest credit card jumps to its regular level. 

Continually opening new low interest credit card accounts and shifting money without attacking the overall debt could worry lenders, potentially hurting your chances for borrowing money in the future. Credit card issuers favor customers who pay interest, viewing customers who transfer debts over and over to avoid paying interest as less-than-ideal borrowers. 

Such excessive balance transfer behavior can also make it tough to borrow money from other lenders outside of the credit card industry, such when shopping for a home or automobile.

Separately, should you make a misstep -- for example, by making a late credit card payment -- your credit card's regular (and undoubtedly much higher) interest rate will get triggered.  That could also result in a sudden surge in the APR on your credit card debt.   

Another reason to be wary of performing too many balance transfers is that the low interest rate you get with a new balance transfer credit card may just apply to the transferred balance itself. It is important to note whether the low interest rate on balance transfers also applies to purchases. Should you need to make a new purchase with the card, the interest on your spending could be at the credit card's regular interest rate. 

Meanwhile, be aware that with a balance transfer credit card, all the payments you make will likely first be applied to the 0 percent portion of your debt. As a result, any other credit card spending will accumulate interest until the transfer is paid off and you can then tackle the most recent charges.

However, all these warnings do not mean that a credit card balance transfer is always a bad idea. In fact, balance transfer credit cards can really work in your favor if used sparingly. If you don't go overboard with transferring balances, and pay attention to any balance transfer fees your credit card may carry, transferring your balance to a lower interest credit card can be an excellent way to save yourself some money as you pay down your debt.

See related: Balance transfer calculator

Published: December 30, 2008

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