You might be able to move a credit card balance from one balance transfer card to another, but it’s probably not the best way to manage debt.
Who wouldn’t love a free loan? It’s the equivalent of a rich uncle handing out a wad of cash and saying “pay me back when you can.”
But a balance transfer from one credit card to another – even one with a 0% APR – is an entirely different proposition. The rules are specific and intricate. And the deadlines, which are absolute, often come with stiff financial penalties.
Because of this, utilizing low- and no-interest introductory rate periods, then transferring the balance to another card when the low rate expires, is akin to walking a financial tightrope. One missed payment or new card with a credit line that’s too low (or a rate that’s too high) could scuttle your payoff plan.
Can you keep transferring credit card balances?So is using a series of card balance transfers to extend that low- or no-interest payoff period really feasible?
“I think it may be possible,” says Rod Griffin, director of public education at Experian, one of the three major credit bureaus. “The question is – is it plausible?”
One-off transfers are typical. “It’s not unusual for someone to transfer a balance from one card to another and pay it off,” he says. “What’s unusual is extending that practice.”
As to whether it’s even possible to execute a series of balance transfers, that’s a tough call. “There are too many variables,” says Griffin.
How do multiple balance transfers affect your score?
It is difficult to predict how getting a string of balance transfer cards would affect your credit.
A balance transfer (or series of them) impacts a lot of the factors that go into your credit score. Some could help; some could hurt.
“Every time you pull a string, everything moves,” says Griffin.
If your score stays the same or improves, you’re fine. If it takes a serious hit anywhere along the way, that could make getting that next 0% card difficult or impossible.
Some of the factors at play with a balance transfer and your score to consider:
- Applying for new credit: Asking for new credit can decrease your score as every time you apply for a new card, a hard inquiry lands on your credit report. The request affects your score for a year and stays on your history for two years, usually just shaving a few points off your score. New credit accounts for 10% of your credit score. Individual hard inquiries usually don’t impact your score too much. But a burst of them over a short period of time can raise red flags. It signals to the credit scoring algorithms that you may have financial problems.
- Age of credit: The average age of your credit accounts comprises 15% of your credit score. Older is better, so a series of new accounts will decrease the average age of your credit and likely lower your score.
- Utilization ratio: How much credit you use counts for 30% of your score. The lower it is, the better your score will be. To figure out your credit utilization ratio, divide your monthly usage on all your credit cards by your total available credit. Carrying a balance hurts your score since it raises your utilization ratio. But a balance transfer card can also help your score, since adding new lines of credit can mean you’re using a smaller percentage of your overall credit.
Risks of multiple balance transfers
A debt payoff plan with unknowns
When your financial plan relies on securing a series of credit card accounts sometime in the future, you are literally banking on a plan with unknown factors. Among them:
- Card availability: If you’re sitting on a pile of debt, credit issuers know it. Depending on your credit history, score and their own policies, some companies might not want to give you a card with a low intro rate. If your strategy is a consecutive string of 0% cards, what happens to that plan if issuers start saying no?
- Your introductory rate and promotional period: In most cases, until you have that balance transfer card in your hand, you won’t know if you got a low introductory rate or how long that deal will last. That’s the case every time you apply for a card – even when you’ve been “preapproved.”
- Your credit line: In many cases, you won’t know the size of your credit line until you’ve applied and been approved. This can be a problem if you don’t receive a credit line high enough (or an intro rate low enough), to make a balance transfer worthwhile.
“This [lack of transparency] is changing,” says Ken Myhra, senior vice president for credit cards at BECU (formerly the Boeing Employees Credit Union). “The onset of digital issuance – Apple Card is probably the most notable of these – provides disclosures at the time of issuing.”
So will those 0% introductory rate cards continue to be popular with issuers? Interest rates are constantly changing, so there’s no guarantee those offers will be available, says Mikel Van Cleve, CFP, advice director for USAA.
Balance transfers require good credit. But what constitutes a good credit score today might not be good enough tomorrow. During the mortgage crisis, for instance, issuers slowed or stopped issuing 0% introductory rates, says Griffin. And many issuers pulled back on balance transfer offers and tightened credit limits in 2020 when the COVID crisis threw the U.S. economy into turmoil.
Fees and issuer restrictions
A balance transfer usually isn’t free. Most cards charge a fee, according to CreditCards.com’s Balance Transfer Survey. The most common fee issuers charged was 3%, but some charge as high as 5%.
If you’re transferring a small amount, read the fine print. Many issuers also set fee minimums at $5 or $10, according to the survey.
A string of balance transfers likely means a string of balance transfer fees. Do the math and see what you’ll actually save. Also, card issuers’ rules may prevent consecutive balance transfers.
At BECU, “we see a correlation between balance transfers, the velocity and frequency at which a member does them, and their financial health,” says Myhra. “This is why most [financial institutions] have one or a combination of a balance transfer fee, a higher balance transfer rate and a smaller line assignment available to a balance transfer.”
Many issuers also prohibit balance transfers between their cards.
Some issuers may not allow you to use all of your new credit line for a balance transfer, says Griffin. USAA, for example, caps balance transfers at 95% of the balance-transfer card’s credit limit.
If the credit line is large enough, still “there may be restrictions on how you can use it,” he says. “It’s critical you understand what the contract says – what your obligations are.”
The temptation to run up more big balances
If you have one go-to card with a healthy credit line and a low rate, you might be able to use it to consolidate several outstanding balances.
Two big caveats: First, you have to be “disciplined about not running up balances again on the cards,” says Myhra.
Second, if an existing balance is on a card from the same issuer as your “consolidation card,” the issuer might prohibit it.
When considering a balance transfer card, look for these terms and make sure to understand them:
- Purchase intro APR: If the card offers a purchase intro APR of, say, 12 months, that means any purchases made with the card will carry a low or no interest rate for the duration of that period. But in most cases, you will still have to make at least the minimum payment every month.
- Balance transfer intro APR: It refers to the no-interest period the card offers on balance transfers. If your card doesn’t offer a purchase intro APR, it means that a regular APR will apply on any purchases you make with the card at any time. Some balance transfer cards may offer both a purchase intro APR and a balance transfer intro APR, but each may come with different conditions – the former may last, for example, six months, while the latter may extend through 18 months.
- Utilization ratio: Keeping the old card open can protect your utilization ratio – but put that card on ice. “The other downfall can be if you transfer a balance from Card A to Card B, and start charging on Card A again,” says Van Cleve. “It’s a hard habit to break.”
See related: What is an intro APR and how does it work?
A balance transfer credit card “could save you time and money,” says Van Cleve. Whether you’re planning one or several, here are some key factors:
- Understand the introductory rate, when it ends, and what the new rate will be.
- Make sure you pay on time. With some cards, one late payment means the end of that introductory rate. So set calendar alerts and consider automatic payments.
- Understand the terms of each promotional period offered by the card.
- Most importantly, do the math. Calculate the cost of that balance on the existing card, says Myhra. Compare that to card options with a lower introductory rate and a transfer fee, as well as cards with no transfer fee but higher rates.
“Realize that doing multiple balance transfers can indeed have a negative short-term impact on your credit score,” he says.
And that could make a string of balance transfers unworkable. Itching to put a few new purchases on the balance transfer card, too? Think again.
“Utilization goes up, creating the danger of going over your limit and incurring over-limit fees, which could nullify any introductory promotions or offers – and you will undoubtedly impact your credit score,” says Myhra.
FICO, the company which pioneered credit scoring, routinely recommends keeping utilization ratios below 30%.
If you need a balance transfer and you’re reaching for the card again, it’s likely time to reassess, says Myhra.