Transferring balances...good or bad?

[TN94z]

Is it a good idea or bad idea to get a 0% credit card and transfer balances off of a higher % credit card when trying to pay it off? I haven't done this in the past, but if it would save me money on interest and not hurt my credit, then I would have no problems doing it. I have heard conflicting stories about whether or not it hurts your credit. I will not be using it for new purchases and will put it away once the balance is transferred. But only if it won't hurt my credit.

[goblue107501]

It depends on a few things if it will hurt your credit. If the amount is small, say less than $3000 or so, I don't think it would be a big deal. Getting another card isn't that big a deal (unless you already have several). And any initial hit you might take on it will be gone in a few months anyway. It can be good to have a few cards with a high maximum and a low to zero balance. It shows that you are able to obtain credit. I have been told that it is better to have $20,000 credit card limit spread over 3 or 4 cards, than to have a $2000 limit on 1 card. My personal opinion is that it will save you money short term and be beneficial long term.

Back when I was just starting out on my own I would do the same thing. I had a few credit cards and would always have an offer to transfer balances for little to no interest on one of them at least once a year. It really helped me out in paying them off and also building up good credit. It would seem like each time I would pay one off by transferring, my rate would go down and the limit would go up.

[TN94z]

It depends on a few things if it will hurt your credit. If the amount is small, say less than $3000 or so, I don't think it would be a big deal. Getting another card isn't that big a deal (unless you already have several). And any initial hit you might take on it will be gone in a few months anyway. It can be good to have a few cards with a high maximum and a low to zero balance. It shows that you are able to obtain credit. I have been told that it is better to have $20,000 credit card limit spread over 3 or 4 cards, than to have a $2000 limit on 1 card. My personal opinion is that it will save you money short term and be beneficial long term.

I am just looking to get rid of all debt as fast as possible(my wife goes to school in May). I have really good credit now and always have. I just wanted to make sure that it would hurt me. I don't mind a slight hit for getting another card if it means that I will save a lot with the 0% interest and, like you said, it won't last that long.

[sean_miller]

It depends on a few things if it will hurt your credit. If the amount is small, say less than $3000 or so, I don't think it would be a big deal. Getting another card isn't that big a deal (unless you already have several). And any initial hit you might take on it will be gone in a few months anyway. It can be good to have a few cards with a high maximum and a low to zero balance. It shows that you are able to obtain credit. I have been told that it is better to have $20,000 credit card limit spread over 3 or 4 cards, than to have a $2000 limit on 1 card. My personal opinion is that it will save you money short term and be beneficial long term.

It's been a while since I applied for a mortgage (~ 10 years) but every bank told me the same thing - too much available credit is frowned upon (in Canada anyway). The banks don't want to loan someone money who could be an additional $20K debt (at a high interest) virtually instantaneously. It's not a sound business arrangement.

[TN94z]

It's been a while since I applied for a mortgage (~ 10 years) but every bank told me the same thing - too much available credit is frowned upon (in Canada anyway). The banks don't want to loan someone money who could be an additional $20K debt (at a high interest) virtually instantaneously. It's not a sound business arrangement.

I have heard that before. And I have also heard that it's not frowned upon as long as you have a good history. It shows that you can get credit and handle what you have. I guess this is one of those things where you will hear a different opinion depending on who you ask....LOL. After doing some reading on it yesterday, I think as long as you can roll your balance over to a no interest card and not use either card anymore, then you will be okay.

Where they get you is when you get the 0% interest card, roll your balance over, and then make new purchases with the card. Your payments that you make are made against the lowest interest debt first (your rollover balance) and new purchases may be 15% (hypothetical). So basically you will be paying 15% on any new purchases until the rollover balance is paid in full. That's where they make their money....they are banking on you using the card for new debt.

[zeg]

Don't forget to check the transfer fees when rolling over. I've not ever done a roll-over, but it seems that the deals have gotten worse in this regard lately. Unless it's going to take a few months to a year to pay off, you may be better off paying the interest rather than taking a hit for the transfer fee.

[Fraser]

It's been a while since I applied for a mortgage (~ 10 years) but every bank told me the same thing - too much available credit is frowned upon (in Canada anyway). The banks don't want to loan someone money who could be an additional $20K debt (at a high interest) virtually instantaneously. It's not a sound business arrangement.

As a loan officer in the mortgage business it depends on the type of available credit. If you have a $100,000 home equity line of credit then your debt to income ratio will be underwritten as though you are using the entire $100k available to you even if you've never touched it. Fannie Mae rules indicate the monthly payment should be calculated as 1% of the limit, i.e. $50,000 HELOC, $500/mo payment.

With revolving debt it doesn't matter how much available you have, you use the payment associated with any balances that shows on the credit report that is pulled against you. With revolving debt where you can get penalised is if you use a large proportion of the credit limit on a given card, even if, like me, you never carry a balance. When your monthly credit card statement ends that balance is reported to the credit bureaus and that is used to calculate your score. When I refinanced my own mortgage the other month my credit was pulled and one of my credit scores was down quite a bit because I'd charged more than 50% of my available credit on a given account that particular month. Not enough for it to put me in the zone where I was paying a penalty for it, but enough for it to irk me. The one thing that bothers me hugely about the credit score nonsense is that you get a better score by lining the pockets of the banks and CC companies. As long as you make minimum payments on time that's seen as being responsible enough to earn you a better score which is counter intuitive. When you read articles about improving your score it is always noted that 'you should leave a balance to show you can responsibly handle credit' - that makes absolutely no sense to me. Showing you are responsible is that you can pay the balance off in full every month!

[JasonP]

AMEN!

Credit cards are evil. If it will save you money, DO IT!

My wife and I stopped using credit cards years ago. Have never regretted it.

[TN94z]

AMEN!

That is the plan I am shooting for!

[sean_miller]

As a loan officer in the mortgage business it depends on the type of available credit. If you have a $100,000 home equity line of credit then your debt to income ratio will be underwritten as though you are using the entire $100k available to you even if you've never touched it. Fannie Mae rules indicate the monthly payment should be calculated as 1% of the limit, i.e. $50,000 HELOC, $500/mo payment.

Not sure if they use the same "credit score" numbers in Canada, but that's where I was shopping for mortgages and was told several times I had too much available consumer credit.

[Fraser]

AMEN!

Actually credit cards aren't evil, it's the people that use them. If you can't afford to pay your balance off in full don't use credit cards....and if you have to rely on credit cards to survive then you've got serious issues.

I find credit cards to be exceptionally useful. They allow to avoid carrying cash, if my card gets cloned then my bank account isn't drained, they're a good budgeting tool as I can see how much I spend each month and I earn thousands of dollars worth of frequent flyer miles each year as a result of my spend. Cost to me, a modest annual fee.

Not sure if they use the same "credit score" numbers in Canada, but that's where I was shopping for mortgages and was told several times I had too much available consumer credit.

Well, available consumer credit isn't something we directly look at. Credit scores take that kind of thing into account and, as broken as they are, we use credit reports (primarily scores) to determine credit worthiness. I guess things in the great white north are a little different

[enis750]

It's been a while since I applied for a mortgage (~ 10 years) but every bank told me the same thing - too much available credit is frowned upon (in Canada anyway). The banks don't want to loan someone money who could be an additional $20K debt (at a high interest) virtually instantaneously. It's not a sound business arrangement.

not the case in Canada bro

the reason why - you dont control the credit limits on your credit cards....typically how often has your bank automatically increased your cc limit, without you asking for the increase? yes you can decrease it at anytime.....BUT banks and especially Mortgage Lenders do not give two hoots about how many accounts you have open anfd the limits available.....only how much you owe

As a loan officer in the mortgage business it depends on the type of available credit. If you have a $100,000 home equity line of credit then your debt to income ratio will be underwritten as though you are using the entire $100k available to you even if you've never touched it. Fannie Mae rules indicate the monthly payment should be calculated as 1% of the limit, i.e. $50,000 HELOC, $500/mo payment.

not the case in Canada bro as mentioned above, you could have a million dollars in available HELOC credit and unless there is a balance, the amount you have available means squat we do not underwrite based on what your limit is, only what you owe as well, if secured on a home (such as a HELOC) we use the interest only payment for TDSR purposes, not 1 or 3%

With revolving debt it doesn't matter how much available you have, you use the payment associated with any balances that shows on the credit report that is pulled against you.

true

With revolving debt where you can get penalised is if you use a large proportion of the credit limit on a given card, even if, like me, you never carry a balance.

true to a point...if you use a large portion of the card (EXample, limit is $2000 and you owe $1900 or more, your score will be affected...especially if you owe more than your limit

When your monthly credit card statement ends that balance is reported to the credit bureaus and that is used to calculate your score.

wrong.....the credit burea isnt "live" meaning that if you owe "x" amount on your statement that this amount will show on your bureau your balances can be reported every 30-90 days...every company is different as to when they report

The one thing that bothers me hugely about the credit score nonsense is that you get a better score by lining the pockets of the banks and CC companies. As long as you make minimum payments on time that's seen as being responsible enough to earn you a better score which is counter intuitive. When you read articles about improving your score it is always noted that 'you should leave a balance to show you can responsibly handle credit' - that makes absolutely no sense to me. Showing you are responsible is that you can pay the balance off in full every month!

your personal opinion is just that

minimum payments keeps the banks happy as they earn high interest off you for doing so lets say you have a 2 credit cards and they have a zero balance and never use them....after a period of time, your credit score will actually go from "good" to a beacon reject now the guy that has the same two cards, uses them often, makes minimum payments and keeps his balances less then 80% utilization....will have great scores and will have all products avilable to him you have to use your cards to earn credit.....dont use them, and your scores will suffer

AMEN!

good for you......now when its time to renew your mortgage or buy a new car....good luck having the scores needed to do so

saying that credit cards are evil and basically usless? sounds to me like someone got into trouble with them you need credit in this day and age to buy things like houses and cars etc.....plain and simple to offer advise based on "we dont need them" is usless information to the OP its not just about saving money.....what are the ramifications behind the zero precent? most cards will allow a balance transfer at 0%.....but if you EVER use the card for a cash withdrawl or a POS transaction, they can change the rate from 0% right back to 18-21% to the OP switching from one credit card to another for a smaller rate obviosuly has it benefits but be aware that part of how your credit score is calculated is based on how long your accounts have been open if your existing card has been open for a while, it is actually helping you earn a good credit score to get the new card, it will cost you a credit inquiry as well show a new card, new balance, that will more than likely be close to its limit all of which will negativley affect your overall credit score credit is a privlidge, not a right you abuse it and it will get taken from you or worse, Bankruptcy you would be better off opening a HELOC (home equity line of credit) and paying your debts off this way it allows you to keep you cards open (the ones you want anyways) and at a much smaller rate if you dont have that option, suck it up and pay off the debts....after all....you got yourslef into debt, now its time to pay it off for the record I am a Mortgage Broker and haven been in this industry well over 8 years managed a bank...yes Managed for 5 years.....so i know what im talking about

[Fraser]

not the case in Canada bro

Which is why I said, "I guess things in the great white north are a little different"....the HELOC issue I addressed is a Fannie Mae rule so the vast majority of loans in the US will have to comply with the guideline.

wrong.....the credit burea isnt "live"

I'm not saying it's live but when my credit was pulled last time for my latest refinance the balance that Chase reported to the credit bureau was exactly the amount that my monthly statement closed at. The few times we pay off revolving debt as part of the refinance we use the latest CC statement to determine payoff and see the same thing.

your personal opinion is just that

I think you're misunderstanding my point. The idea of the credit score system is to determine how responsible someone is with credit. If I never use a credit card then I agree with you, that doesn't show responsibility but what I was saying is that if I use my credit card daily and pay the balance off in full every month then I'm seen as being as responsible as someone who owes $10,000 and is paying $150 per month at 17% APR which is not responsible whatsoever....and people are encouraged to leave a small balance on revolving debt to get make their scores better!! I know it's better for the banks but it's every so slightly biased, right?

[zeg]

credit is a privlidge, not a right

True, but this is something of a non sequitur after a post explaining how much of a game the credit scoring system is.

[Yukari]

Actually credit cards aren't evil, it's the people that use them. If you can't afford to pay your balance off in full don't use credit cards....and if you have to rely on credit cards to survive then you've got serious issues.

I agree. CC is good for those who can pay it off every month. I have my own business and have a CC that I pay off every month (so no interest payment). It has NO annual fees, but gives me 3% rebate on certain transactions and 1% rebate on all other transactions. Because my business spends a lot of money on behalf of my clients (who reimburses me a month later), it is great way to pay without having to fork over my money upfront.

And because it has no annual fees (I don't know why anyone would get a CC that charges annual fees these days) and gives me rebates, it actually earn me "free" money every month. Sometimes it can be as much as $200 to $300 dollar!

[sean_miller]

There's no such thing as free money. The money credit cards use for rebates is available because merchants are charged a fee per transaction. Ultimately, consumers pay for those fees in the form of higher prices. It's like returning your bottles for a refund. You're just recouping money you already paid up front.

[Yukari]

I see you are a glass half empty type of guy.

I have to disagree that I am "just recoupring money already paid up front." I agree that merchants get charged a fee from the cc companies and that consumers pay, eventually, in the form of higher prices. But most cc don't give rebates to majority of their customers. So the ones who are getting the rebate are "coming out ahead" compared to those who do not get rebates--who in fact can be said to be subsidizing those who do get the rebates.

The fact of the matter is, I pay the same price whether I pay cash or credit card. So by getting a rebate in using cc, I come out ahead compared to using cash.

[wrx_junki]

Transfer fees usually come at 3%($5 minimum) which is much better than paying those interest rates. When you pay a balance on your credit card it will apply to the highest interest rate balance first, which would be your recent purchases. If you have a high credit limit credit card I'd say transfer it all to that one card as long as you don't max it out. Most credit card companies have recently been offering 0% APR on balance transfers. Good luck in consolidating your debt.