Source
r/povertyfinance•
O2012

Rotating debt between 0% balance transfer cards?

Hey all,

A friend of mine has about $15,000 of debt in a personal loan. Would he be able to transfer that to a 0% introductory credit card, pay off as much as possible during the introductory period, and then transfer whatever is left to another 0% card when the introductory offer expires?

I have a few concerns including:

  1. Will credit card companies let him do this?
  2. Will he be able to get 15k line of credit? His credit score is around 750

Thanks in advance for any help!

Posted Jan 8, 2020, 4:03 AM UTC

315
ridingKLR•

So, this is extremely risky, and I recommend against it unless you have very good financial discipline, but it's doable. I'm in the middle of it right now, with very similar numbers.

It took me a while to get my credit line that high, and honestly I doubt that your friend would get $15k right away. Discover starts you off with a pretty decent credit limit with promotional APRs but the limit will depend on the income of the applicant.

If your friend is seriously set on this, he should know that if he does not drop that balance fast, his credit utilization will be high and he will most likely not be offered another 0% transfer from another card. Once the promotional period of 0% from the initial balance transfer ends, your friend will have to pay the regular interest rate, usually 18%-25%. At that rate, recovery is almost impossible.

To summarize, it's possible, but the credit limit is dependent on income and the strategy is very risky

4
O2012OP•

He makes about 30k so maybe he could get 15K between 2 cards? And then transfer to 2 other cards or get another personal loan once the 0% APR is over?

Around what range does credit utilization need to be at to get these offers? And is the utilization calculated across all cards or individually per card?

0
ItsaToast•

No he won’t get approved for that much credit with that income. He can probably get 1-2k.

3
SpyderFoode•

Short answer: this is highly unlikely to work out for your friend based on info I see in other comments about income and credit history. Someone making 30k is not going to get approved for a new 15k line of credit, and definitely wouldn’t get approved for ANOTHER 15k line of credit to rotate the balance back to when the promo ends.

Additional info:

It’s important to note that balance transfer cards have a limited promotional window, typically 10-18 months, after which time the 0% APR jumps up to as much as 25% or more (which will also increase the minimum payment). So you need a practical plan to eliminate the balance in that time period. Additionally, the card will charge a one-time fee for the transfer, typically 2-4% of the transfer amount. For example, if the transfer fee is 3% and they transferred 15k, they would be charged an additional $450 on top.

Additionally, lines of credit can be revoked/reduced at any time for any reason, and promotional offers are not always available. Thus, making plans to utilize an additional balance transfer offer in the future is inherently risky.

Finally, managing credit card debt by opening new lines of credit and doing transfers requires a lot of discipline. All too often, people transfer a balance off of a card but then continue using the old card and/or make additional purchases on the new card, resulting in even more debt than they started with.

Balance transfers are just another tool, and just like any tool, they can be extremely beneficial if used judiciously, and very damaging if misused. And while bouncing a balance back and forth every year or so to minimize interest payments is certainly possible (I’ve done it myself before to avoid being “cash poor”), it carries a lot risk

3
O2012OP•

Thank you for your feedback. I was thinking he could get another personal loan once the promotional period is over (if no other promotional offers are available), but if he’s only going to get approved for $1-2 Knut might not even be worth it...

1
nip9MO•

Generally yes that is possible. I've done it a lot. Whether your friend can get 15k in large part depends on his income and other credit lines. If he makes ~100k and has 100k+ in available credit lines he is almost certain to get 15k+ more for a balance transfer with a 750 credit score. If he makes ~30k and has less than 10k in existing credit lines he has almost no chance of getting a 15k limit when opening a new card no matter how good his credit score it.

The problem for your friend is over the long term at some point the music stop and he will be stuck without the ability to do another 0% balance transfer. Either something may happen in his personal life(job loss, medical issue, etc) to cause him to miss payments, default on debts, and have the sort of bad credit score that credit card companies won't touch. Or there will be a big economic recession/depression and banks will tighten up and stop doing these sort of 0% offers for everybody for a while (as has happened in past recessions).

1
O2012OP•

He makes about 30k so maybe he could get 15K between 2 cards? And then transfer to 2 other cards or get another personal loan once the 0% APR is over?

Around what range does credit utilization need to be at to get these offers? And is the utilization calculated across all cards or individually per card?

0
nip9MO•

There isn't a simple answer here. Banks each have their own complex proprietary formulas to determine how much credit to extend.

Beyond income, and debt to income ratio a big factor here is any already existing credit cards and what their limits & utilization are. Somebody with only $500-1000 credit limits isn't very likely to get 5-10k limits on new card; however somebody with the same income who already has a couple cards with ~5k+ credit limits and low utilization has good odds of getting ~15k between 2-3 new cards.

Even if he is able to stitch together ~15k of 0% money in round 1 without aggressively paying most of that down he is likely to be screwed when those expire as he would have all his existing credit limits plus ~15k more... and then be trying for ~10-15k additional on top of all that. At that point his total credit available compared to his income is likely to look too risky.

1
O2012OP•

Thanks for the feedback. I’ll try to see more details about his credit limits to see if this may be workable...

1
ItsaToast•

Sure he can, I do it. Just make sure he can make the payments for the amount x the 0% time- 1 month. Always pay one month short of the expiration time Edit- even if he can’t get the full 15, a chunk at 0% will help.

1
O2012OP•

Thanks. How does the minimum payment work on these? Is it just a standard $35 or so?

1
ItsaToast•

You can’t pay the minimum. The only way to do it is to treat it like a loan. So if he gets 12 months 0% promotional APR, then the amount he gets approved needs to be divided by 11 and payed that amount monthly. Most backdate with exhorbant rates if it’s not paid off by the promotional end.

Otherwise he’s paying more.

3
O2012OP•

Ahh this makes a huge impact!

Thank you!

1
cmikaiti•

It's possible, but risky. Depending on the rate of his personal loan, it might be too risky.

The big risk is that he initially gets approved for the balance transfer cards, but is unable to do it the second time. Now he has all that debt on high interest credit cards instead of (relatively) low interest personal loan.

Like others have said. It seems unlikely that he will get an individual card with a credit limit of over $5,000, though, so this whole thing may be moot.

1
harrison_wintergreen•

this sort of thing is possible, but it won't really fix the problem. you can't borrow your way out of debt and people can waste a lot of time tinkering with the interest rate or terms of the loan, when they should be just punching the loan in the face every month.

the problem is $15,000 in CC debt, and bouncing the debt from Bank X to Bank Y and then Bank Z does make it disappear. what makes the debt disappear is cutting expenses, working a second job, and applying $1000 per month towards the debt.

1