5 Options for When a Balance Transfer Credit Limit Isn’t Enough
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If you took the initiative to make a dent in your high-interest card debt and applied for a 0% balance transfer credit card, only to discover that the credit limit on the card isn’t big enough to transfer all your debt, what do you do?
Unfortunately, there’s no guarantee you will be approved for a high enough credit limit to transfer your full balance. That’s when it’s time to get a little creative. Here are some of your options:
What to look for when applying for a balance transfer card
When comparing balance transfer cards, consider:
- How long the 0% introductory period is (generally anywhere from 6-21 months)
- If there is a balance transfer fee (usually between 3% and 5% of the amount transferred, which is added to your balance)
- What kind of credit score you need to qualify
- Card terms after the introductory period expires
First and foremost, you want to give yourself ample time to pay your balance. Some cards offer a year and a half of intro 0% interest. The one thing you won’t know until you are approved for a card is how big your credit limit will be. If you don’t qualify for the amount you need, you’ll have to come up with a Plan B.
Creating a balance transfer backup plan
If the credit limit you’re given is only a fraction of what you need, you still have options.
Option No. 1: Ask the card issuer for a higher credit limit
“You can always ask the issuer to reconsider the credit limit that they’ve assigned you and see if there’s any room to increase the ceiling,” says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC).
Having strong credit puts you in a better position to get an increase, but you should be prepared for a rejection. Nevertheless, it never hurts to ask. If you do make such an inquiry, ask whether the issuer will have to pull your credit (known as a hard pull) again to accommodate the request. If so, know that your credit score will take a small temporary hit, but it may be worth it when considering your overall debt payoff goal, and your score will rebound as your card balances decrease.
Option No. 2: See if your existing card issuer has a balance transfer offer
You’ve probably gotten offers from your existing cards to transfer other balances over, but hadn’t considered them before. If you have a solid payment history, it’s worth a conversation with your existing card issuer, says McClary. “You may even get improvements on your existing card,” he adds, such as a higher credit limit or temporary reduction on your regular purchase APR.
Assuming you’ve already been approved for another balance transfer deal and the limit wasn’t high enough, and one of your existing cards will let you transfer over the remaining balance, you’ll end up with two transfer balances to deal with. As long as the APRs on both are substantially lower than what you’re currently paying, you’ll save money. The trick is figuring out how to prioritize the payments.
One method might be to max out payments on the balance transfer offer with the longest introductory period, and put the rest on the other. But regardless of how you divvy up the debt, your goal should be to pay off both totals before the 0% or lower rates expire.
The best way to do that is to take the transfer total and divide by the number of months in the introductory period for both cards. Then you’ll know how much you’ll have to pay each month on each card to conquer the entire debt without incurring interest. Otherwise, apply a higher payment to the card with the shorter 0% promotional period and, once that balance is paid off, devote all possible funds to the balance on the remaining card.
Another benefit of working with an existing issuer is that they may be able to help you without having to doing a hard pull on your credit report – just be sure to clarify that when you call.
Option No. 3: Consider applying for another balance transfer card with a different issuer
If you strike out on a balance transfer deal with your existing card issuer, you can try your luck with another issuer (other than your original balance transfer issuer), but there is a downside to applying for numerous cards. “Hard inquiries – especially more than one in a short period of time – can harm your credit and may even risk your ability to get approved for the new card,” says Sullivan.
If you’re not in the market for a big loan any time soon, such as a mortgage, that credit hit may be worth it. Hard inquiries can knock your score down by about five points each time, but the impact only lasts a year. Plus, with the added credit lines of a couple new cards, plus the eventual deletion of your debts, you should find your credit score will actually increase.
If you do end up being approved for two new balance transfer cards, that will allow you to split your existing debt between them. Again, how you split up the transferred balances is up to you – you might put more on the card with the longer introductory rate so you have extra time to tackle it. Or, you might do an even split so you’re not maxing out either card’s utilization. No matter which route you take, the more important goal is to complete both payoffs without incurring further interest charges. In that case, you should try to make sure at least one of them is a no-fee balance transfer card. Otherwise, you may get socked with two balance transfer fees.
Option No. 4: Max out the balance transfer card; keep the rest where it is
Say you have $10,000 in debt. From a mathematical point of view, if you move even half of it onto a 0% APR card and pay it off within the no-interest period, you’re still in better shape, says Mike Sullivan, a personal financial consultant with Take Charge America, a national nonprofit credit counseling and debt management agency. “If you can’t transfer 100% of the balance, it doesn’t negate the value of the balance transfer,” he says.
On the other hand, with two accounts to manage instead of one, you could be “kicking the can down the road,” says Sullivan – that is, if you don’t have the discipline to follow through or keep from adding to the balance on the new or the original card.
As for credit score implications, Sullivan says not to worry much here. While maxing out the credit line of a new account can cause your score to dip, your total available credit is also increasing, which can give you a boost.
For example: You had an original credit limit of $20,000 and a balance $15,000, therefore utilizing 75% of your credit. If you open a balance transfer card with a credit limit of $10,000 and move that much of the original balance over, even though the new card is maxed, your total available credit has grown to $30,000. Therefore, you’ve lowered your overall utilization to 50%.
Option No. 5: Consider applying for a debt consolidation loan
If you decide not to use a balance transfer card, you may still be able to tackle your entire debt at a lower interest rate via a consolidation loan. Chances are you will be able to find a rate that’s lower than your current credit card (if you have a decent credit score). While it’s not quite as attractive as a 0% balance transfer rate, having a fixed monthly payment and a debt-free finish line could make your goal more attainable. Plus, you are more likely to find a debt consolidation loan to cover your entire card balance, rather than having to resort to splitting the debt between a couple cards.
The key is to shop around for the best possible terms, and avoid falling back into bad habits once you have your loan. “The scenario I’ve seen far too often is that someone will consolidate their debt with best of intentions. Fast forward a year, and they still have a consolidation loan, but they’ve run their credit card balances back up,” says McClary.
When you should consider a balance transfer card
According to LendingTree’s 2018 Balance Transfer Credit Card Report, among the 41% of Americans who say they’ve used a balance transfer card in the past, four in 10 admit that they failed to pay off the balance during the introductory period.
That’s why before you open a balance transfer card, the true test is to figure out if you can pay your debt before the interest kicks back in, says Sullivan. “Ask yourself: Can I pay this balance off while I’m getting the introductory rate?”
To figure that out, divide your balance by the number of months in the introductory period offered by the card you’re looking at to see what your monthly payment should be to get to a zero balance within the promotional time frame. If you think you can swing that amount, you’ll have a higher likelihood of success.
The big balance transfer decision
Now that you know your options, it all comes down to two main balance transfer card considerations:
- What are the short-term benefits? How much will you save by moving all or some of your current balance to a 0% interest card, and will you be disciplined enough to stay on track? Use a balance transfer calculator to help you crunch the numbers.
- Are there any long-term benefits? Is your new card a product you can live with once your debt is paid off? The Discover it® Cash Back is a good example of a card with both short- and long-term value. Besides its balance transfer deal, it has a robust cashback program.
The bottom line: If you can pay off your debt — even a portion of it — at a lower interest rate, you’ll save money. But no matter which route you take, you must stick with your payoff game plan to end up in better shape than when you started.