What to do when a balance transfer credit line isn’t big enough

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Among 4 options: Apply for a second balance transfer card

Personal Finance Writer
Writes regularly about personal finance and health

What to do when a too-small balance transfer credit line isn't enough

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A 0 percent balance transfer credit card can be a lifesaver when you are saddled
with high-interest card debt. But if the credit line on the new card is too low
to absorb all the debt you want to transfer, what do you do?

A good balance transfer deal represents a great opportunity to
use credit cards to your advantage, says Daniel K. Berman, author of “The
Newest Story of O: Secrets to Making the Credit System Work in Your Favor.”

Balance transfer cards give you a temporary reprieve on paying interest so you can
put all of your money toward the debt instead of interest and pay it off faster.

Berman’s debt was
once in the six figures, and he is now debt-free with a FICO score of 848 (a perfect score is 850). “The
transformation took several years and 0-interest balance transfers were the
final stage of the process,” he says.

But what if you have $10,000 in credit card debt and are approved
for a balance transfer offer with just a $5,000 credit limit? When applying,
you have no control over how much your credit line is going to be as the lender’s
decision is based on a variety of factors, including your credit history and score.

So, you may find yourself with too much high-interest debt to transfer to a card with too-little of a credit line.

While you have several options available, some may have greater
consequences on your credit than others. Here’s what you need to know to come
up with the best solution for you.

Option No. 1:
Transfer as much as you can.

Pro: You can pay down
the 0 percent APR card faster.

Con: The maxed-out balance
transfer card can hurt your credit score.

In this scenario, you could take the 0-percent balance
transfer offer and transfer up to the limit of the new card. On the positive side, you’ll pay no interest
on the balance on the card during its promotional period so you can pay it down faster.

Know that you will likely be charged a
balance transfer fee, typically 3 to 5 percent of the amount being transferred, which is added to the balance. There are some balance transfer cards, though, that charge no balance transfer fee (more on this later).

On the downside, the promotional card will be maxed out,
which could temporarily hurt your credit score. One of the biggest factors in
determining your credit score is your credit utilization ratio, which compares
the amount you owe to the amount of credit you have available across not only
one card, but also across all your cards.

For example, if you owe $500 and have a $1,000 credit limit,
your credit utilization ratio is 50 percent. The higher the ratio, the worse
for your credit score, says Sarah Davies, senior vice president of analytics
for VantageScore Solutions, creator of the VantageScore credit scoring model.

However, when you add a new line of credit, your overall
credit utilization will decrease if you’re carrying balances on other cards as
your total available credit rises. So, you may find that the credit score
impact of adding a new credit line and maxing it out temporarily may cause your
scores to fluctuate, but not greatly.

Also know that a hard inquiry generated
by applying for a new card will ding your score a few points for a year.

Provided you are not in the market for a big loan, such as a
mortgage, a see-sawing credit score shouldn’t cause too much concern during
your debt pay-down efforts. As you whittle away at your balances, your scores
will work their way up – provided you don’t add more debt to your balances.

“While you would be taking a temporary hit to your credit score, in the long run, if you’re making regular on-time payments, your score will recover.”

Option No. 2: Apply
for a second balance transfer card.

Pro: You can divvy up
your high-interest debt among two 0 percent card deals.

Con: You could end up
paying two balance transfer fees, as well as double the hard inquiries on your
credit reports.

When the credit limit on one card isn’t enough, you could apply
for a second 0-percent balance transfer offer and spread your high-interest debt
among the two cards. This strategy could help keep your overall credit
utilization lower since you’ll have a higher total credit limit, but there are
other potential pitfalls.

Every time you apply for credit, your score drops a few
points, Davies says. Also, if you open multiple new credit accounts at once,
the average age of your credit accounts will be lower, which also can negatively impact your credit score. This is particularly damaging if you have
a relatively short credit history and have been using credit for only a few
years.

If you choose to go this route, there also is the question
of whether you should apply for multiple cards at once or stagger the applications.
FICO scores only consider new credit inquiries for the previous 12 months, so
waiting a year could be beneficial, but again, if you’re motivated, don’t worry
so much about the near-term damage and focus on the long-term goal of getting
out of debt.

Even if you did apply for multiple new cards in succession,
new applications for credit don’t affect your score as much as payment history
or credit utilization ratio. “While you would be taking a temporary hit to your
credit score, in the long run, if you’re making regular on-time payments, your
score will recover,” Davies says.

To avoid doubling up on balance transfer fees, know that
there are cards out there that currently do not charge a fee, such as the VentureOne
and Venture Rewards cards from Capital One, and the cashRewards and Platinum
cards from Navy Federal Credit Union.

Option No. 3:
Ask for a lower APR on your existing cards and a higher credit limit on the new
card.

Pro: A
higher credit limit request may be granted after several months of on-time
payments.

Con: Your high-interest
card issuer most likely won’t cut its APR to 0 percent.  

“Sometimes
credit card issuers will work with you because you’re a great and loyal
customer,” says Linda L. Jacob, a financial counselor with Consumer Credit of Des Moines, Iowa. If you can’t transfer
the entire balance on an existing card to a new 0-percent balance transfer
offer, you can ask your current card issuer if it will lower the interest rate on the
remaining balance. 

According to a 2017 CreditCards.com survey, 69 percent of
respondents
who
asked for a lower APR received one
. So, pick up the phone, call the number on
the back of the card with the highest interest rate and give it a shot.

CreditCards.com
has a handy
script
to follow when making the call. While the issuer probably won’t drop
your rate to 0 percent, it may be willing to lower your rate by a few percentage points.

When calling
the card issuer, let your issuer know that you want to keep its business but your
top priority is getting the best rate so you can pay off your debt faster. If
the first person you speak with can’t help you, ask for a supervisor or try
calling at a different time, Jacob adds.

When asking
for a higher credit limit on the new balance transfer card, timing is key as the
odds of getting your request granted increase substantially after you have made
steady, on-time payments for six months or more.

“Before I was able to pay zero interest, I got lower interest.”

 

Option No. 4: See if any
of your current cards are offering a low- or no-interest balance-transfer offer.

Pro:  You won’t have to apply for a new card.

Con: You may end up
paying more interest than you would with a new 0-percent offer.

When developing your debt payoff strategy, it’s smart to check
what your existing cards are currently offering in terms of low or no interest
deals. Just go online to your card issuer’s website or payment portal to see if
there are deals to be had, or you can just call and ask.

While a 0-percent promotional rate is ideal, they are
typically advertised as introductory offers for new cardholders, but you could
still save money by taking advantage of, say, a 4.9 percent rate for the next
12 months.

If your
credit isn’t the greatest, a low-interest offer might be the best deal you can
get. “Before I was able to pay 0 interest, I got lower interest,”
says Berman. 

By accepting this offer, you won’t have to apply for a new
credit card. You also would enjoy a lower rate, which would give you time to
make on-time payments and to improve your credit utilization ratio – factors that
will help you to improve your credit score and possibly qualify you for a
better promotional offer later.

With all these options, there are pros and cons.  Even if you choose an option that has a
short-term negative impact on your credit score, you can reverse the damage by making
on-time payments and refraining from running the cards back up, Jacob says.

The key is to decide on your balance-transfer strategy and
stick with it. 

“Anyone who tells you
that you can count on eliminating debt quickly is either misinformed or
dishonest,” says Berman.  “With patience
and perseverance, though, it can be done.” 

See related: 9 things you should know about balance transfer cards, Balance transfer calculator, 6 steps to a successful credit card balance transfer

 





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