4 Ways a Balance Transfer Can Go Wrong
by Christy Bieber | Updated Sept. 17, 2021 - First published on Aug. 17, 2019
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Balance transfers can help you pay off debt -- but problems can arise if you aren’t careful. Here’s how a balance transfer could go wrong.Image source: Getty Images.
Balance transfers can be extremely helpful in repaying debt that you owe. When done right, a balance transfer can reduce the cost of repayment and make paying down principal faster and easier.
Unfortunately, not all balance transfers are done properly. In fact, many people make balance transfer mistakes that end up costing them big time. If you want to avoid these common errors that could make your financial situation much worse, check out these four ways a balance transfer could go very wrong.
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1. Your card charges you expensive fees
Some balance transfer credit cards charge fees to transfer a balance. Others don’t.
If you have to pay a fee to move money over to the card, this can make your balance transfer more expensive and leave you with more debt to pay. A 3% balance transfer fee could cost you $150 if you transfer over $5,000 in debt to your balance transfer card -- so you’d now have $5,150 to pay back. A balance transfer fee can also negate some of the interest savings. And it can reduce the credit available to you for transferring over your balance.
Some balance transfer cards also charge an annual fee while others don’t. This further adds to your cost. If you opened a balance transfer card with a $95 annual fee and a 3% balance transfer fee, you’d now be paying $245 extra.
While this may still be cheaper than keeping your debt on your existing credit card -- depending on your interest rate and that card’s annual fee -- there’s often no reason to pay these fees if you can find another balance transfer card that doesn’t charge them.
2. You miss the promotional window
With most balance transfer credit cards, you have a limited amount of time to move your balance over to qualify for a low promotional interest rate and a limited amount of time to qualify for a $0 fee transfer. For example, to get these special offers, you may have to transfer the balance within the first 60 days of opening your account.
If you don’t act quickly enough to move the money over, you could find that you’ve just paid a fee to move debt to a credit card that’s now charging you a high interest rate. This would be a major waste of money and you could end up in a worse position than you’d have been in had you just left your debt alone.
3. Your card’s 0% intro APR period is way too short
The point of a balance transfer card is to have many months to pay off your debt without incurring any interest charges. That’s why people look for balance transfer cards with 0% introductory APRs. But these 0% rates don’t last forever. With some cards you could end up with as little as six months at the 0% intro APR, while others allow you 15 months or more at the promotional rate.
If you have a very short 0% intro APR period, you probably won’t save that much on interest because you’ll only get a break on interest charges for a limited period of time. And you may not be able to pay your debt back in such a short time -- which would mean you’d be charged the card’s standard APR on all outstanding debt remaining when the promotional rate expires. Your debt could cost you a fortune to pay back once the interest rate jumps up to the standard rate.
4. You keep on spending instead of paying off debt
Finally, one of the biggest mistakes you could make when transferring a balance is not getting your spending under control.
When you transfer a balance, you free up the credit available on your existing cards you previously owed on. If you aren’t in control of your cash flow, you could end up running up a ton of credit card debt on those cards. And if you have available credit left on the balance transfer card, you may be tempted to max that one out as well.
This could leave you with a brand new maxed out credit card along with old cards that you’ve charged a lot on again. In this situation you could find yourself really deeply in debt and would likely struggle mightily to get out of it.
Avoid these common balance transfer mistakes
To make sure you don’t make these common balance transfer mistakes, it’s important to get your spending under control before you do a balance transfer. You’ll also want to shop around carefully for a balance transfer card with favorable terms. You can start with our picks for the best balance transfer cards to find offers with long 0% promotional APRs and no fees. Finally, use a balance transfer calculator to see how much you can potentially save with a balance transfer. Find the perfect card today so you can get your debt pay-down project underway.
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About the Author
Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
