5 Times You Should NOT Do a Balance Transfer to Pay Off Debt

If any of these situations apply to you, a balance transfer might hurt your wallet more than it helps.Image source: Getty Images.

When you’re drowning in debt and looking for a quick way out, you’re likely to jump at any offer that can help you pay off that debt and save money on interest. 

Doing a balance transfer could be that solution. They come with a 0% introductory APR, so you can put money down on your debt while not paying a penny in interest. However, eventually that introductory period ends, and if you weren’t diligent about paying off your balance, you’re back to square one -- or worse.

It’s important to consider carefully whether or not a balance transfer is the right choice for you. If you’re in any of the following situations, it’s probably best to search for a different way to pay off your debt.

1. You have a lot of debt

If you have a large amount of debt, you likely won’t be able to pay it off entirely before the introductory period ends, which could land you in even more debt than before. That’s because once the introductory period ends on a balance transfer credit card, the interest rate jumps up to the ongoing APR, which is usually very high on balance transfer credit cards. You might be paying a 14% interest rate now, but if you do a balance transfer and neglect to pay off your balance in time, you could be looking at interest rates closer to 20%, which will make it even harder to pay off your debt. Introductory periods on the best balance transfer credit cards tend to be between 15 and 21 months, so do the math and make sure you can afford your monthly payments.

If you can’t, you could use a balance transfer to transfer a portion of your debt -- an amount you’re certain you can pay off before the introductory period ends. That will allow you to quickly pay off a chunk of your debt interest-free. Keep in mind that this will result in two separate payments though, one on your existing balance and one on the balance you transferred. Alternatively, you could look into debt consolidation loans, which allow you to consolidate your debt under one monthly payment using a personal loan. Just make sure that loan comes with a lower interest rate than what you’re currently paying.

2. You have bad credit

Unfortunately, a lackluster credit score can really limit your options when it comes to paying off your debt quickly. If you have bad credit or no credit at all, you probably won’t qualify for a balance transfer credit card with a 0% introductory offers. Applying for multiple credit cards after you’ve already been denied will only continue to decrease your credit score.

In this situation, it’s wise to continue steadily paying off your debt. Regular, on-time payments will eventually help to increase your credit score, as will decreasing your balances. Once your credit score has improved, you can look into balance transfer offers again and use them to pay off your remaining debt.

3. You have a habit of overspending

If you haven’t gotten your spending under control, a balance transfer may only encourage you to dig yourself into even more debt. It’s not uncommon for consumers to pay off their credit card using a balance transfer, only to rack up another credit card bill now that their line of credit is free again.

Only do a balance transfer if you’re sure you can keep your spending under control. In fact, if you don’t want to close your old account once you’ve paid it off -- as closing credit cards can bring your credit score down -- at least cut up your credit card so you can’t use it.

4. You don’t have a clear plan for paying off your debt

In addition to not spending money on your newly paid off credit card, you also have to come up with a solid plan to pay off the balance on your new balance transfer credit card -- and stick to it. As mentioned before, paying off the balance before the card’s introductory period is up is critical if you want to save money on interest and get your debt paid off quickly.

Before opening a balance transfer credit card, look at the balance you want to pay off and divide it by the number of months in a balance transfer credit card’s introductory period -- usually 15, 18, or 21. If you’re paying off $8,000 in credit card debt and you qualify for a credit card with a 21-month 0% introductory APR, you’ll need to make monthly payments of at least $381 in order to have the card paid off in 21 months. Analyze your budget and figure out whether you can actually afford the monthly payment necessary to pay down your new balance transfer credit card on time.

5. You can pay off your debt in a few months

Most balance transfer credit cards charge a balance transfer fee of 3% or 5%, so you’ll need to take that into account when deciding whether or not a balance transfer is right for you. If your balance is low and can be paid off in a matter of months, transferring it to a balance transfer credit card might not be worth the fees you’ll end up paying. Even if you break even, applying for a new credit card could cause a small dip in your credit score. If you’re almost done paying down your debt, it’s better to just pay it off as soon as possible at your current interest rate.

If any of these statements apply to you, it’s best to either explore other options for paying off your debt, such as debt consolidation loans, or to simply continue paying off your debt each month. While balance transfers can help, unfortunately there’s no quick fix when it comes to paying off debt.