Balance Transfer Question(s)

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Topic Author
hameshatumkochaha
Posts: 123
Joined: Tue Feb 22, 2011 7:33 pm

Balance Transfer Question(s)

Post by hameshatumkochaha »

Hi,
We are a couple with 2 kids, great credit score (810+) and are in the process of selling the old home as we recently moved to our new home. We poured our cash reserves into the down-payment and will pay-off most of the remaining loan once we sell the old home. We don't want to touch our retirement and non-retirement assets (almost all are QQQ or SPY equivalent). We never carried CC balance (paid in full on-time). While we are cash-flow positive, if we could get a breather of a good chunk of change, we won't mind. We could expedite some upgrades to the new home i.e. solar panels etc. I currently have $14k balance on our CC which originally I was planning to pay in full ~May 10, when it is due.
By chance, I noticed the following secured message at a credit union (CU) where we have a savings and CC account with $18k limit: "Get a promotional transfer rate of 0.00% APR until June 30, 2023. After that, your balance transfer rate will revert back to your standard APR of 13.99%. Balance transfer must be completed by May 15, 2022 in order to receive the promotional balance transfer rate. Standard balance transfer rate after May 15,2022 is 13.99%. Promotional rate ends June 30, 2023 at which time the rate will transition to current standard rate. Rates are variable and are subject to change. 1This APR will vary with the market based on the Prime Rate. Certain restrictions may apply. No fee charged for balance transfer.".
I have NEVER done balance transfers (BTs). I have the following questions:
1. If I accumulate my current and another month's balance and transfer to the CU promotional offer and pay off on June 29, 2023, would that indeed be a 0% i.e. interest free loan up to $18k?
2. Is there typically a minimum monthly balance due each month after BT?
3. Are there any dings to our credit scores OR any effect on our mortgage that is approved and we pay in full on-time?
4. Are there some gotchas I should be aware of to avoid the surprise?
5. Are there chances that the fact that we would have BT would hurt me applying for any future CCs before June 30, 2023? I ask because I have done CC churning once or twice before and might want to start once things settle...
6. If there are indeed no negative down-sides but a 0% loan for a fairly large amount, then any harm in me actively exploring this for one or two more cards that I might already be carrying but never used the BT offers off? I don't want to overdo it but certainly want to explore...

Thanks. I must add that we firmly believe in and have always paid in full as I said above. I just want to explore if there is an opportunity that is offered; why not take it...
Thanks!
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HMSVictory
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Re: Balance Transfer Question(s)

Post by HMSVictory »

I would get out of this habit of spending money you do not have. Its like "hey I only smoke when I drink" no big deal.

Don't balance transfer to move the pea under another shell - pay it off in full. Your staring down the barrel of 26% interest if you mess something up (or if they do) and you miss a payment or life happens. You aren't going to build wealth playing balance transfer games or borrowing on credit cards to invest (balance sheet wise). Just pay everything off and simply your life.
Stay the course!
MrJedi
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Re: Balance Transfer Question(s)

Post by MrJedi »

You need to watch for the fixed fee. While free balance transfers do exists they are not common. Usually there is something like a 1-3% fixed balance transfer fee before you get to the 0% APR. Looks like this offer is actually free though. Just something to watch for for other offers

The balance will go into the new CC. There will be a minimum monthly payment to satisfy, yes. This varies from lender to lender, but usually it's something like the greater of 1% of balance or $30.

Your credit will likely suffer a temporary hit, because the higher balance will mean higher utilization ratio. This is temporary because soon after you pay the balance down, the lower balance will report and bring your utilization back to normal along with your score.

There will so be temporary credit hits from the credit pull and new account, as usual.

If your new mortgage is already funded, this won't matter at all. If not already funded, usually there is a last minute credit check before funding. If there are new inquiries or credit cards on your report they will ask about it. It's not necessarily a dealbreaker but underwriting will ask for statements/reasons for them and re evaluate. It's not a huge deal as long as you are not borderline, but it is an extra hassle and an extra hurdle that can slow things down. That is why people usually recommend waiting for funding before getting new cards.

Personally if I'm going to open a new CC, I'd rather get one with a fat sign up bonus. That will likely outweigh the interest you can earn on the little bit of interest rate arbitrage you have here. If you are trying to leverage up debt to invest into stocks, that is quite risky with the short 12 ish month horizon.
Last edited by MrJedi on Sun Apr 24, 2022 6:33 am, edited 2 times in total.
michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

Re: Balance Transfer Question(s)

Post by michaeljc70 »

Yes, you have to make the minimum monthly payment. Your credit would probably be impacted by a small amount due to an inquiry and new account and more credit available. Moving a balance around or carrying one shouldn't impact your credit unless you're using a good portion of your outstanding credit (usually more than 30%). Likely if you miss a payment you'll wind up paying the 13.99%. As pointed out above, a lot of offers charge a balance transfer fee of 2%-5% so it isn't really free money.

Is the old house for sale? I'd concentrate on selling that and not solar panels for the new house and not shifting debt around.
petulant
Posts: 2084
Joined: Thu Sep 22, 2016 1:09 pm

Re: Balance Transfer Question(s)

Post by petulant »

hameshatumkochaha wrote: Sun Apr 24, 2022 3:18 am Hi,
We are a couple with 2 kids, great credit score (810+) and are in the process of selling the old home as we recently moved to our new home. We poured our cash reserves into the down-payment and will pay-off most of the remaining loan once we sell the old home. We don't want to touch our retirement and non-retirement assets (almost all are QQQ or SPY equivalent). We never carried CC balance (paid in full on-time). While we are cash-flow positive, if we could get a breather of a good chunk of change, we won't mind. We could expedite some upgrades to the new home i.e. solar panels etc. I currently have $14k balance on our CC which originally I was planning to pay in full ~May 10, when it is due.
By chance, I noticed the following secured message at a credit union (CU) where we have a savings and CC account with $18k limit: "Get a promotional transfer rate of 0.00% APR until June 30, 2023. After that, your balance transfer rate will revert back to your standard APR of 13.99%. Balance transfer must be completed by May 15, 2022 in order to receive the promotional balance transfer rate. Standard balance transfer rate after May 15,2022 is 13.99%. Promotional rate ends June 30, 2023 at which time the rate will transition to current standard rate. Rates are variable and are subject to change. 1This APR will vary with the market based on the Prime Rate. Certain restrictions may apply. No fee charged for balance transfer.".
I have NEVER done balance transfers (BTs). I have the following questions:
1. If I accumulate my current and another month's balance and transfer to the CU promotional offer and pay off on June 29, 2023, would that indeed be a 0% i.e. interest free loan up to $18k?
2. Is there typically a minimum monthly balance due each month after BT?
3. Are there any dings to our credit scores OR any effect on our mortgage that is approved and we pay in full on-time?
4. Are there some gotchas I should be aware of to avoid the surprise?
5. Are there chances that the fact that we would have BT would hurt me applying for any future CCs before June 30, 2023? I ask because I have done CC churning once or twice before and might want to start once things settle...
6. If there are indeed no negative down-sides but a 0% loan for a fairly large amount, then any harm in me actively exploring this for one or two more cards that I might already be carrying but never used the BT offers off? I don't want to overdo it but certainly want to explore...

Thanks. I must add that we firmly believe in and have always paid in full as I said above. I just want to explore if there is an opportunity that is offered; why not take it...
Thanks!
1. Not really. There is almost certainly a 3-5% fee to transfer up front.

2. Yes, it is the same minimum monthly payment as if you purchased items on the card. It's generally about 1%, but your specific card's terms apply.

3. Yes, there is a ding to your credit score. The impact of the ding depends on the resulting size of your available credit lines that you have taken. So, you will have a new inquiry, new account, more credit, but higher usage. It could be anywhere from a hit of 15 to 100 depending on your situation. Based on what you have said, I would imagine it would be closer to 15-20.

There may be an impact on your mortgage if you take out the credit card before closing. The bank may notice a significant change in your credit profile and ask questions. If you take the new card after closing on the new house, it would not affect the mortgage.

4. Not really. One thing to make sure you do is send transfer paperwork more than a day before the due date on your old card. It can take anywhere from 3-5 business days on the short end to a couple weeks for a transfer to process, so you can end up eating interest for a couple days on the old card if you're not careful. Some cards let you direct deposit the balance transfer so you can control the timing a bit better.

5. Yes. It is possible that worse credit would affect your future credit card applications. On the other hand, actually carrying a balance may attract more offers (even if it's a 0% rate balance).

6. It's more like a 3% loan that does affect your credit negatively and which you need to pay off in a year. No free lunch. It's hard to imagine it's worth your time, but I have done similar things for liquidity purposes.
Topic Author
hameshatumkochaha
Posts: 123
Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

Hi,

Thanks all for the replies. Some comments:
A. @HMSVictory: Thanks for the comments. I never spent anything I did not have. This is the first time when I am considering trying the 0% BT and that too only for liquidity. I don't have such habit; but yes, I agree, one must not get into such habit.
B. @all: I must not have clearly stated that the 0% BT with 0 fee offer is on an existing credit card; no new application needed.
C. Good to know that there will be a monthly payment of much smaller amount than the principle.
D. Yes, bonuses sound better than the BT offer to me always; just that this time around I am trying to push for the liquidity.
E. The mortgage is indeed funded.
F. @petulant Thanks for mentioning the time taken for the transaction to go through
I welcome more inputs. So far, I have not found a major red flag...

NEW question:
This happened to me a few months ago as well as now. In 2021 Dec for donations and in 2022 March for 1040-ES payments, I put ~$10k on a credit card (2.63% cash back vs. the fees were 0-2.5%). The total allowed credit is $25k of that card. Overall, the total credit limits of all the number of credit cards I have is ~$250k. As soon as I got ~$10-15k total balance in Dec and March on a $25k credit card, my credit scores dropped by ~60-70 points from ~810+ to ~750+. Should a balance of $10-15k not affect because the denominator is ~$250k and not $25k (i.e. total credit instead of the card's credit)? Has anyone observed that and if yes, how do I get the correct calculations from the credit bureaus in place? I am ok with some ding to the credit score; just that such a large ding for a fairly small balance compared to the total credit allowed seems odd.

Thanks again for your comments. If there are more; I welcome them.
MrJedi
Posts: 2169
Joined: Wed May 06, 2020 11:42 am

Re: Balance Transfer Question(s)

Post by MrJedi »

Credit score formulas are proprietary. But it has basically been proven through anecdotal evidence that both overall utilization and individual account utilization matter for scoring.
exodusNH
Posts: 4308
Joined: Wed Jan 06, 2021 8:21 pm

Re: Balance Transfer Question(s)

Post by exodusNH »

hameshatumkochaha wrote: Mon Apr 25, 2022 12:20 am Hi,

Thanks all for the replies. Some comments:
A. @HMSVictory: Thanks for the comments. I never spent anything I did not have. This is the first time when I am considering trying the 0% BT and that too only for liquidity. I don't have such habit; but yes, I agree, one must not get into such habit.
B. @all: I must not have clearly stated that the 0% BT with 0 fee offer is on an existing credit card; no new application needed.
C. Good to know that there will be a monthly payment of much smaller amount than the principle.
D. Yes, bonuses sound better than the BT offer to me always; just that this time around I am trying to push for the liquidity.
E. The mortgage is indeed funded.
F. @petulant Thanks for mentioning the time taken for the transaction to go through
I welcome more inputs. So far, I have not found a major red flag...

NEW question:
This happened to me a few months ago as well as now. In 2021 Dec for donations and in 2022 March for 1040-ES payments, I put ~$10k on a credit card (2.63% cash back vs. the fees were 0-2.5%). The total allowed credit is $25k of that card. Overall, the total credit limits of all the number of credit cards I have is ~$250k. As soon as I got ~$10-15k total balance in Dec and March on a $25k credit card, my credit scores dropped by ~60-70 points from ~810+ to ~750+. Should a balance of $10-15k not affect because the denominator is ~$250k and not $25k (i.e. total credit instead of the card's credit)? Has anyone observed that and if yes, how do I get the correct calculations from the credit bureaus in place? I am ok with some ding to the credit score; just that such a large ding for a fairly small balance compared to the total credit allowed seems odd.

Thanks again for your comments. If there are more; I welcome them.
Even if your overall credit use is low, a balance above 50% on one account dings your credit. I ran in to this last year with a 0% card. My credit use across all accounts was well below the suggested maximum, but the moment that card hit 50%, there was a big hit.

As noted, the actual algorithms are proprietary and vary for each different score type. The score you see from your credit card company is different than what the bank uses for your mortgage.
tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: Balance Transfer Question(s)

Post by tashnewbie »

hameshatumkochaha wrote: Sun Apr 24, 2022 3:18 am We poured our cash reserves into the down-payment and will pay-off most of the remaining loan once we sell the old home.
What do you mean by this? Does this mean you're going to take proceeds from sale of old house to almost completely pay off the mortgage on the new house?
Topic Author
hameshatumkochaha
Posts: 123
Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

@exodusNH: Thanks for the 50% observation. That explains it... This will also mean that since I will be putting close to $18k on the card that gives me 0% APR with $18k max limit, I will be dinging my credit for another year anyway. Good to know.
@tashnewbie: Yes. I have a loan of ~$700k on the new home. I expect the old home to sell at $750k. I plan to put ~$450k from the sale and bring down the mortgage from $700 to ~$250k and then the left over $300k in QQQ or SPY for the coming few years.
There is also a good chance that I might just pay off the new home fully. Don't know exactly which of the two options I will pick once the old home sells... I lived there for all of the last 9 years so there should be no tax; purchase price was $300k and the upgrades should add up to $25k; so up to $825k sell price should be tax-free...
tashnewbie
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Re: Balance Transfer Question(s)

Post by tashnewbie »

hameshatumkochaha wrote: Mon Apr 25, 2022 1:51 pm @tashnewbie: Yes. I have a loan of ~$700k on the new home. I expect the old home to sell at $750k. I plan to put ~$450k from the sale and bring down the mortgage from $700 to ~$250k and then the left over $300k in QQQ or SPY for the coming few years.
Instead of doing taxable investing with the leftover $300k, why not just use some of it to pay for the house upgrades and to set aside whatever cash you need to give you a "breather"? It seems that'd be easier and less hassle than playing around with BT etc.
Topic Author
hameshatumkochaha
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Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

@tashnewbie: Interesting perspective. I will think about that... Thanks
michaeljc70
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Re: Balance Transfer Question(s)

Post by michaeljc70 »

Is the old home on the market yet? Mortgage rates have gone up 60% this year and I can't imagine that's going to be good for the real estate market.
Topic Author
hameshatumkochaha
Posts: 123
Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

michaeljc70 wrote: Mon Apr 25, 2022 5:18 pm Is the old home on the market yet? Mortgage rates have gone up 60% this year and I can't imagine that's going to be good for the real estate market.
Yes, the rates have gone up and will likely go up more. Phoenix area appears to be doing fine but certainly it cannot keep on going up. We are trying to get it listed soon. Thanks.
Topic Author
hameshatumkochaha
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Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

hameshatumkochaha wrote: Mon Apr 25, 2022 10:36 pm
michaeljc70 wrote: Mon Apr 25, 2022 5:18 pm Is the old home on the market yet? Mortgage rates have gone up 60% this year and I can't imagine that's going to be good for the real estate market.
Yes, the rates have gone up and will likely go up more. Phoenix area appears to be doing fine but certainly it cannot keep on going up. We are trying to get it listed soon. Thanks.
You were spot on. We listed; however, before we could get offer, the Fed started aggressively raising the rates. The home is holding value but no buyers yet so we are now exploring reducing the price. The catch is: if the price holds, I don't mind letting the house sit for a few months; however, the Fed wants the housing prices to lower as clearly said by Mr. Powell in the recent interview. No point fighting the fed. If the price doesn't hold, I would be in a 3 year clock for enjoying the tax-free gains to sell the home. I prefer not being a landlord; so I might just reduce the price a bit and sell. Hoping for the best. Hindsight is 20/20; I should have listed the house ~1-2 weeks earlier. While we had a death in the family resulting in the international travel, I know that it was doable so I don't want to use that as an excuse but prefer owning up the learning...

[Discussion of Federal Monetary policy removed by Moderator Misenplace]
TXGator
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Joined: Mon Sep 26, 2016 1:38 pm

Re: Balance Transfer Question(s)

Post by TXGator »

I use the balance transfer offers more often than not, but I also do it to accelerate paydowns where the transfer fee is much lower than monthly interest over the promotional period.

That being said - do you have a line of credit/access to margin on your taxable accounts? While rates are rising it is available but you would only have to draw when needed.
Topic Author
hameshatumkochaha
Posts: 123
Joined: Tue Feb 22, 2011 7:33 pm

Re: Balance Transfer Question(s)

Post by hameshatumkochaha »

TXGator wrote: Wed Jun 22, 2022 7:59 pm I use the balance transfer offers more often than not, but I also do it to accelerate paydowns where the transfer fee is much lower than monthly interest over the promotional period.

That being said - do you have a line of credit/access to margin on your taxable accounts? While rates are rising it is available but you would only have to draw when needed.
Never had line of credit. Might explore. Thanks.
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