Credit cards can be dangerous. In fact, they are for most people who use them. 61% of people in the US are currently in credit card debt. And if you find yourself in this boat, you might be thinking about a credit card balance transfer to help slow the bleeding. While that is generally a good idea, there are a couple BIG problems with credit card balance transfers that you should be aware of.
If you are drowning in credit card debt and can’t seem to outrun the interest, please consider doing a balance transfer to a 0% interest credit card. It will help you a lot. Just understand that you still have to be careful because simply doing the transfer doesn’t solve your problem.
Problem #1: Opening too Many Credit Cards Can Potentially Damage Your Credit
To have a really good credit score you have to do a little bit of a balancing act. There are several different factors that go into having an 800+ score. They include:
If you are considering doing a credit card balance transfer, keep the last one in mind, new credit.
Every time you get a new credit account your credit will get dinged a little. It likely won’t be too bad though. In my experience as a banker, it is a 10-20 point drop for about 2 months and then your score will go back to normal.
If you do a credit card balance transfer then be prepared for the initial drop of 10-20 points in your credit score for a couple months or so.
Is this a really big deal? No.
But it can be…
If you have too many hard credit pulls and new credit accounts in too short of a period of time, your credit score will decrease.
So if you are doing a balance transfer every few months as well as signing up for your favorite department store credit cards when offered 20% off of your purchase as well as applying for a car loan, etc. you will have a score that will decline.
Don’t have your credit pulled unless it is something that you have thought about for a while already. Do what you can to protect your credit.
Another way that doing a credit card balance transfer can hurt your credit is that if you do it too many times you can look like you have a LOT of credit open to you.
If you have too much credit available, you can be seen as risky to potential lenders.
This might seem counterintuitive but I have seen it in my career several times.
I have seen people who apply for a loan but are denied because they have done balance transfers each of the last several years and now they have hundreds of thousands of dollars of open credit at their disposal.
This might seem like a good thing (and often it is), but sometimes a potential borrower who has less available credit looks more enticing to a bank because they have less ability to get into unnecessary debt than the person who has a lot of credit that they could use.
For example, generally a borrower who makes $60,000 per year who has reasonable expenses, little debt, and $10,000 in available credit looks pretty good to a bank for a potential loan.
But another person who has the same income, debt, expenses, etc. comes in but has $75,000 in available credit might not look as enticing because that person could potentially rack up $75,000 in debt because it is simply available to them.
Problem #2: A Balance Transfer Doesn’t Fix the Problem of Credit Card Debt
There are times where you can make the argument for “good debt” or “bad debt”. Credit card debt is not one of those times.
Even at 0% interest, once the promotionary time has ran out you will be HAMMERED with interest.
If you find yourself in the boat that a LOT of people are in where you are consistently carrying a credit card balance, don’t beat yourself up.
Do whatever you can to get out of that cycle. Cut back on spending where you can. Try to get a raise at work or a side hustle. Do whatever you can because you cannot outrun 20+% interest on a credit card.
There are a lot of times where you might be able to transfer your credit card debt to a 0% interest card. If you can do it, then generally it is a good idea. You can save hundreds or even thousands of dollars in interest.
But just understand that simply doing the transfer does not solve the problem.
You have to ask yourself how and why you wound up with credit card debt in the first place.
Was it because you consistently overspend? No shame. I have been there too.
Is it because you are underpaid at your job and need to find another one or ask for a raise? I have been there as well, my friend.
Or is it just because life is really expensive in 2024?
Whatever the answer is, do what you can to pay off your credit card debt as fast as possible and stay out of the credit card debt ditch.
No matter how many airline miles, reward points, or increases in your credit score, there is no time you should be paying credit card interest.
So if you want to save some interest money going to the credit card company, go for it. If I were in credit card debt, that is probably what I would do as well.
Just understand that you have to solve the problem, not just treat the symptom. The problem is that you have credit card debt. Simply moving it to a 0% interest card doesn’t solve that. It helps, but it doesn’t solve the problem.
Final Thoughts
Credit card debt is a killer. It is impossible to earn more interest on your investments than you pay in credit card debt for more than a few months. You will never earn enough airline miles to make up for the interest that you are paying on your credit cards.
If you want/need to do a credit card balance transfer, then go for it. You will buy yourself some time while not paying unnecessary interest. Just make sure not to do it too often and make sure to actually pay off the credit card debt.
You can do this!
I am here for you!
Until next time!
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