While I have mostly highlighted the positives of executing a credit card balance transfer throughout this site, I felt it would be fair to discuss some of the negative aspects as well.
As I’ve mentioned in previous posts and pages, credit card balance transfers can help you save money by avoiding finance charges associated with high-APR credit cards. But there’s always a cost, right?
Right. The costs of credit card balance transfers can be direct or indirect, so let’s look at a few perceived cons of balance transfers.
Balance Transfer Fees
One clear negative to a credit card balance transfer is the associated fee, called the “balance transfer fee,” which is typically 3% of the amount transferred, with a minimum of $5, and a maximum of $100. However, fees can be as high as $150 (or may have no limit at all), so be sure to read the fine print carefully to find out the max fee on your specified balance transfer.
These fees can add up over time, and if you’re not careful, they could cost more than what the finance charges would cost for simply carrying the balance. Luckily, there are some credit card issuers that offer no fee balance transfer credit cards.
Impact on Credit Score
Credit card balance transfers are typically accompanied with credit inquiries, as banks will need to gather your information to ensure you’re a qualified borrower before granting you a new line of credit, which is really what a balance transfer is, a new line of credit.
As you may know, credit inquiries will ding your credit score in the short term, although the impact shouldn’t be too extensive. However, if you continually execute balance transfers, credit inquiries will pile up and your credit score will be sure to suffer.
That’s why it is important to use balance transfers sparingly, and only when absolutely necessary. After all, you don’t want to damage your credit score to save a few bucks in finance charges do you?
Not Learning Your Lesson
With the wide availability of balance transfer offers out there, consumers may come to rely on shifting debt as opposed to actually paying off their credit card debt. While a balance transfer can result in bringing one credit card down to a zero balance, the debt doesn’t simply disappear.
The result will be a new credit card with the old balance, as well as a balance transfer fee if applicable. And the cycle will continue if very little debt is paid off, with balance transfer fees sprinkled on top of mounting debts.
While this is a con you can control, the offers will keep pouring in, and you might have to ask yourself if and when you plan to play off your debt once and for all.
Running Out of Options
Believe it or not, even with all the balance transfer options out there, there may come a time when you run out of options when it comes time to transfer an existing balance. Suppose you have a bad credit score, or you’ve already got credit cards with all the major card issuers. You may have a difficult time obtaining a new credit card balance transfer that has the terms and conditions you desire.
And who wants to keep applying for new credit cards over and over again? Luckily there are options. Check out my page on how to transfer credit card balances with bad credit.
Overall, credit card balance transfers can be very useful, money-saving instruments if used in moderation, at the right time, and for the right reason. Like anything else, if used too frequently, or relied upon too heavily, there can be negative side effects.