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.
There’s no question about it: Credit card debt is a huge burden for many Americans.
In fact, according to TransUnion, the average credit card balance in the U.S. in the second quarter of 2022 was $5,270. If you’re looking to get a break from interest payments so you can focus on reducing your balance, you might want to take advantage of introductory 0 percent APR offers on balance transfers.
The idea is to transfer all your credit card debt to a new balance transfer card, then pay off your entire balance during the 0 percent APR period. That said, some cardholders focus on reducing, rather than eliminating, their debt. At the end of the offer they transfer their balance to a new card and continue to pay it down.
While this can be a useful strategy in some scenarios, there are several things to consider before pursuing multiple balance transfers, like the impact to your credit score and mounting fees.
How can a balance transfer help you break the cycle of overspending?
A balance transfer doesn’t offer a quick fix to your finances. However, it can be an effective tool if you’re trying to break the cycle of overspending and get out of debt.
A balance transfer can help you in two ways. First, it can consolidate your debt onto one card — rather than trying to pay off multiple debts on different cards, each accruing interest separately. A balance transfer can also help you reduce your overall interest payments, if you’re able to transfer your balance to a card with a lower interest rate.
Important factors to consider with multiple balance transfers
It’s important to be aware of the biggest drawbacks to a string of balance transfers, such as:
- The negative impact on your credit score from multiple hard inquiries and a decreased average age of credit accounts (if you’re approved).
- Balance transfer fees are generally 3 percent or 5 percent (often with a minimum of $5 or $10) of your transfer amount.
- There’s a possibility you won’t be approved for another balance transfer card, especially if multiple hard inquiries and high credit utilization on your existing cards has lowered your credit score.
- Perhaps your new credit limit isn’t high enough to transfer your full balance, meaning you’d still have to pay interest on the residual debt on the old card and keep track of multiple accounts.
When does it make sense to transfer a balance multiple times?
A multiple balance transfer strategy makes sense if you plan on paying your credit card debt aggressively but are unlikely to pay the entire balance off before your first promotional balance transfer period expires.
It also helps if you have a good credit score to begin with, so that any negative impact from applying to multiple cards won’t significantly hurt your chances of being approved for the next one.
Transferring one or two large balances may be better than several small balances, since you could end up paying more in balance transfer fees if the amounts are too small (remember, some issuers set lower limits on balance transfer fees). You should also try not to transfer your balance more than a few times, since applying for a bunch of new cards in a short amount of time signals to issuers that you’re planning to overspend.
When does it not make sense to transfer a balance multiple times?
This strategy is not a good idea if you plan on making only minimum payments on your balance. It will stretch your debt over a period of years, and you may require many new balance transfer cards along the way. That would mean multiple transfer fees and the potential to be left paying interest on your old card if you are denied a new one.
You’ll also want to avoid this strategy if your balance is currently subject to a lower-than-average APR. Even though balance transfer cards offer a low or 0 percent APR for the promotional period, you’ll still have to pay the regular APR once that period ends if you don’t get approved for a new card.
Finally, the whole purpose of transferring your balance to a new card is to spread payments over time while saving on interest. It’s not, however, intended to free up space on your old card so you can accumulate even more debt. If that is your plan, you’ll do better to avoid this strategy altogether.
How do multiple balance transfers affect your credit score?
Multiple balance transfers may impact your credit score differently. Some of these effects may be good, others less so. However, it’s hard to predict exactly how your credit score will change every time you apply for a new balance transfer card. These are the main ways a multiple balance transfer strategy could affect your credit score:
- Hard inquiries: Every time you apply for a new credit card, a hard inquiry is recorded on your credit history. New inquiries lower your score anywhere from five to 10 points each time.
- Length of credit history: The age of your credit accounts makes up 15 percent of your FICO score. New credit lowers your average account age and the age of your newest account, both of which negatively impact your score.
- Multiple payments: If approved, you’ll have a new credit account to keep track of. Payment history makes up 35 percent of your credit score, so if managing multiple accounts makes it harder for you to make payments on time, this could hurt your score significantly.
- Credit utilization ratio: Getting a new card increases your available credit while not necessarily increasing your overall debt. This means you’ll have a lower credit utilization ratio, which is good, especially considering that it counts for 30 percent of your overall FICO score.
What happens to your old account when you transfer the balance?
If you’re transferring a balance, you may also be thinking about closing the account for good. However, closing it will increase your credit utilization ratio, since you’ll be limiting your overall available credit while still paying off your debt.
After you’ve fully paid off your debt, you can choose to close it or keep it open. Keeping it open may help improve your credit score by keeping your credit limits open while keeping your credit usage low (which hopefully you are when you’re out of debt).
On the other hand, if you’re sure you no longer want the card (for instance, if it has an annual fee you no longer want to pay), closing it may be a good idea despite the credit score impact.
Multiple balance transfers can be a tricky way to pay off credit card debt. It may not be the best option for those who are already struggling financially or just looking for a way to stall paying off their balance. There are, however, some potential benefits to consider. Signing up for a balance transfer card can be a smart way to save on interest if you’re committed to paying your debt as soon as possible.
Keep in mind that multiple balance transfers can hurt your credit score, but if you handle them responsibly, it might be the right financial decision for you.