The Hidden Benefits of Keeping a Balance Transfer Credit Card

In the world of personal finance, one of the cardinal rules is to pay off your credit card balance in full each month. This guideline helps you avoid interest charges that can quickly accumulate and outweigh any rewards or cash back you earn. However, there’s an exception worth considering: having a balance transfer credit card in your wallet for those unexpected large purchases or emergencies.

Over the past decade, I’ve found myself in situations where a balance transfer card has been a lifesaver. Let’s explore why keeping a balance transfer credit card can be beneficial for your financial health.

One of the most appealing aspects of balance transfer credit cards is that they often come with no annual fees. As premium credit cards increasingly charge higher annual fees, having a balance transfer card that won’t cost you anything to maintain is a significant advantage. For example, I applied for the Discover it® Chrome Card in 2014 and have kept it for over ten years primarily because it doesn’t charge an annual fee. I regularly receive balance transfer offers with a 0% annual percentage rate, allowing me to manage my finances more effectively.

Applying for a balance transfer credit card is a strategic investment. While it may result in a temporary dip in your credit score due to a hard inquiry, the long-term benefits can outweigh this initial setback. Over time, as you manage your credit responsibly, you may even see an increase in your credit score thanks to improved credit utilization and payment history.

For instance, a few years ago, I faced an unexpected hospital bill that amounted to several thousand dollars. Although I initially paid it with my Chase Sapphire Reserve®, I knew that I wouldn’t be able to pay off the balance immediately. Instead of incurring high-interest charges, I transferred the balance to my Discover it Chrome card. This decision allowed me to make manageable payments over time, which not only kept me from falling behind but also helped improve my credit score by lowering my credit utilization ratio on my Sapphire Reserve.

Another advantage of using a balance transfer credit card is the potential for credit limit increases. When you use the card responsibly and pay off your balances, issuers are often willing to raise your credit limit, which can further enhance your credit profile. After paying off an $8,000 balance, I requested an increase on my Discover it Chrome and was approved for an additional $8,000. This not only reflects positively on my credit report but also decreases my overall credit utilization.

Historically, balance transfer credit cards had strict rules regarding the types of debt you could transfer. Typically, you needed to provide the account number of the debt you wanted to pay off directly. However, many issuers have become more flexible with balance transfers. Nowadays, you may have the option to transfer funds directly into your checking account. This can be particularly useful in situations where you need cash for a large payment or if the debt isn’t with another creditor.

For example, during a recent move, I encountered a situation where my moving company only accepted cash. Thanks to my balance transfer credit card, I was able to transfer the necessary funds into my checking account ahead of time. I then paid off the balance within six months without accruing interest, demonstrating the versatility of balance transfer cards.

It’s crucial to remember that a balance transfer credit card should not be viewed as a means to overspend. Instead, consider it a financial tool to help you navigate unexpected expenses. By using it responsibly, you can protect your savings and checking account balances, allowing you to allocate cash for other important goals, like a down payment on a home or starting a business.

Additionally, responsible use of a balance transfer card can enhance your credit score, making it easier to qualify for premium credit cards that may have previously seemed out of reach.

In conclusion, keeping a balance transfer credit card can be a smart financial strategy. It offers flexibility during emergencies, helps manage large expenses without accruing interest, and can even improve your credit score. By using it wisely, you can safeguard your finances and set yourself up for future financial success.

For those considering a balance transfer credit card, it’s essential to research and find the right card that fits your needs. The Points Guy is committed to helping individuals leverage their credit cards for maximum benefit, whether through cash back, travel rewards, or managing unexpected expenses. Always remember to spend within your means and view your balance transfer credit card as a valuable financial resource.