When a Balance Transfer is a Bad Idea

Businesswoman cutting up credit card
••• © Peter Dazeley / Creative RF / Getty

For someone who's trying to save money on credit card interest, every credit card balance transfer deal looks interesting. Only, not every balance transfer is a good move. Sometimes moving a balance can leave you in a worse position, especially if the terms of the new credit card aren't as good as the terms on the old one. Here are some times that a balance transfer can be a bad idea. If any of these are true for the credit card you're considering, it's better to leave your balance where it is.

You don’t qualify for the promotional interest rate

Getting a credit card pre-approval offer for a great balance transfer rate doesn’t mean you’ll be approved for those same terms. Once the creditor pulls your credit report and evaluates your income, they may approve you for a less generous balance transfer rate. Without a great credit score, chances are you won’t qualify for the great balance transfer rate you were hoping for.

The credit card already has a balance

Typically the point of transferring a balance is to take advantage of a low interest rate offer. However, when a credit card already has a balance at a higher interest rate, you won't get the full benefit of the promotional balance transfer rate.

When you make your monthly payments, only the minimum payment will go toward the low rate balance transfer. Anything above the minimum will reduce the balance with the highest interest rate and the balance transfer will accrue interest. In this scenario, your balance transfer wouldn't accrue interest if it's at 0%, but the other balance still hinders your ability to take advantage of the promotional rate.

You’re transferring balances to avoid a credit card payment

Transferring a balance because you don’t have enough money to make your payment only postpones the inevitable. You may avoid the payment this month, but what about next month? And since balance transfers take time, the transaction may not complete before your payment comes due and you'll be responsible for the payment anyway. If you can’t make your credit card payment, explore other options.

The new credit card has an annual fee

Moving your balance to a credit card that has an annual fee can negate whatever interest savings you get from a lower balance transfer rate. A can help you estimate the cost of transferring your balance by comparing the terms of your old credit card to the new one. Before you move the balance, be sure that the new annual fee won’t end up costing you in the long run.

The new credit card has a lower credit limit

Moving your balance to a credit card with a lower limit can hurt your credit score, especially if the new balance is more than 30% of your credit limit. Thirty percent of your credit score considers your amount of debt. High credit utilization, measured by the ratio of your credit card balance to the credit limit, can hurt your credit score. Fortunately, paying down the balance can bring your credit score back up. You may be willing to accept a temporary hit to your credit score if it helps you pay off your credit card balance.

You can’t afford to pay it off during the promotional period

The benefit of a promotional balance transfer rate is you reduce or eliminate finance charges, which in turn allows more of your payment to go toward reducing the actual credit card balance. You can use a credit card payment calculator to figure out the monthly payments you’ll have to make to pay off the balance before the promotional rate expires. If you can’t afford the payments. there’s a chance the balance transfer will be more expensive than you hoped for.

If you’ve decided that a balance transfer isn’t the best move right now, asking your credit card issuer for a lower interest rate may be an option for saving money on interest. With a good credit history and your account in good standing, your card issuer may be willing to lower your interest rate a few percentage points. Otherwise, you can reduce the amount of interest you pay on a high rate card by paying off the balance off faster.