What to do when a balance transfer credit line isn’t big enough

A 0 percent balance transfer credit card can be a lifesaver when you are saddled with high-interest card debt. But if the credit line on the new card is too low to absorb all the debt you want to transfer, what do you do?

A good balance transfer deal represents a great opportunity to use credit cards to your advantage, says Daniel K. Berman, author of “The Newest Story of O: Secrets to Making the Credit System Work in Your Favor.”

Balance transfer cards give you a temporary reprieve on paying interest so you can put all of your money toward the debt instead of interest and pay it off faster.

Berman’s debt was once in the six figures, and he is now debt-free with a FICO score of 848 (a perfect score is 850). “The transformation took several years and 0-interest balance transfers were the final stage of the process,” he says.

But what if you have $10,000 in credit card debt and are approved for a balance transfer offer with just a $5,000 credit limit? When applying, you have no control over how much your credit line is going to be as the lender’s decision is based on a variety of factors, including your credit history and score.

So, you may find yourself with too much high-interest debt to transfer to a card with too-little of a credit line.

While you have several options available, some may have greater consequences on your credit than others. Here’s what you need to know to come up with the best solution for you.

Option No. 1: Transfer as much as you can.

Pro: You can pay down the 0 percent APR card faster.

Con: The maxed-out balance transfer card can hurt your credit score.

In this scenario, you could take the 0-percent balance transfer offer and transfer up to the limit of the new card. On the positive side, you’ll pay no interest on the balance on the card during its promotional period so you can pay it down faster.

Know that you will likely be charged a balance transfer fee, typically 3 to 5 percent of the amount being transferred, which is added to the balance. There are some balance transfer cards, though, that charge no balance transfer fee (more on this later).

On the downside, the promotional card will be maxed out, which could temporarily hurt your credit score. One of the biggest factors in determining your credit score is your credit utilization ratio, which compares the amount you owe to the amount of credit you have available across not only one card, but also across all your cards.

For example, if you owe $500 and have a $1,000 credit limit, your credit utilization ratio is 50 percent. The higher the ratio, the worse for your credit score, says Sarah Davies, senior vice president of analytics for VantageScore Solutions, creator of the VantageScore credit scoring model.

However, when you add a new line of credit, your overall credit utilization will decrease if you’re carrying balances on other cards as your total available credit rises. So, you may find that the credit score impact of adding a new credit line and maxing it out temporarily may cause your scores to fluctuate, but not greatly.

Also know that a hard inquiry generated by applying for a new card will ding your score a few points for a year.

Provided you are not in the market for a big loan, such as a mortgage, a see-sawing credit score shouldn’t cause too much concern during your debt pay-down efforts. As you whittle away at your balances, your scores will work their way up – provided you don’t add more debt to your balances.

Option No. 2: Apply for a second balance transfer card.

Pro: You can divvy up your high-interest debt among two 0 percent card deals.

Con: You could end up paying two balance transfer fees, as well as double the hard inquiries on your credit reports.

When the credit limit on one card isn’t enough, you could apply for a second 0-percent balance transfer offer and spread your high-interest debt among the two cards. This strategy could help keep your overall credit utilization lower since you’ll have a higher total credit limit, but there are other potential pitfalls.

Every time you apply for credit, your score drops a few points, Davies says. Also, if you open multiple new credit accounts at once, the average age of your credit accounts will be lower, which also can negatively impact your credit score. This is particularly damaging if you have a relatively short credit history and have been using credit for only a few years.

If you choose to go this route, there also is the question of whether you should apply for multiple cards at once or stagger the applications. FICO scores only consider new credit inquiries for the previous 12 months, so waiting a year could be beneficial, but again, if you’re motivated, don’t worry so much about the near-term damage and focus on the long-term goal of getting out of debt.

Even if you did apply for multiple new cards in succession, new applications for credit don’t affect your score as much as payment history or credit utilization ratio. “While you would be taking a temporary hit to your credit score, in the long run, if you’re making regular on-time payments, your score will recover,” Davies says.

To avoid doubling up on balance transfer fees, know that there are cards out there that currently do not charge a fee, such as the VentureOne and Venture Rewards cards from Capital One, and the cashRewards and Platinum cards from Navy Federal Credit Union.

Option No. 3: Ask for a lower APR on your existing cards and a higher credit limit on the new card.

Pro: A higher credit limit request may be granted after several months of on-time payments.

Con: Your high-interest card issuer most likely won’t cut its APR to 0 percent.  

“Sometimes credit card issuers will work with you because you’re a great and loyal customer,” says Linda L. Jacob, a financial counselor with Consumer Credit of Des Moines, Iowa. If you can’t transfer the entire balance on an existing card to a new 0-percent balance transfer offer, you can ask your current card issuer if it will lower the interest rate on the remaining balance.

According to a 2017 CreditCards.com survey, 69 percent of respondents who asked for a lower APR received one. So, pick up the phone, call the number on the back of the card with the highest interest rate and give it a shot.

CreditCards.com has a handy script to follow when making the call. While the issuer probably won’t drop your rate to 0 percent, it may be willing to lower your rate by a few percentage points.

When calling the card issuer, let your issuer know that you want to keep its business but your top priority is getting the best rate so you can pay off your debt faster. If the first person you speak with can’t help you, ask for a supervisor or try calling at a different time, Jacob adds.

When asking for a higher credit limit on the new balance transfer card, timing is key as the odds of getting your request granted increase substantially after you have made steady, on-time payments for six months or more.

Option No. 4: See if any of your current cards are offering a low- or no-interest balance-transfer offer.

Pro:  You won’t have to apply for a new card.

Con: You may end up paying more interest than you would with a new 0-percent offer.

When developing your debt payoff strategy, it’s smart to check what your existing cards are currently offering in terms of low or no interest deals. Just go online to your card issuer’s website or payment portal to see if there are deals to be had, or you can just call and ask.

While a 0-percent promotional rate is ideal, they are typically advertised as introductory offers for new cardholders, but you could still save money by taking advantage of, say, a 4.9 percent rate for the next 12 months.

If your credit isn’t the greatest, a low-interest offer might be the best deal you can get. “Before I was able to pay 0 interest, I got lower interest,” says Berman.

By accepting this offer, you won’t have to apply for a new credit card. You also would enjoy a lower rate, which would give you time to make on-time payments and to improve your credit utilization ratio – factors that will help you to improve your credit score and possibly qualify you for a better promotional offer later.

With all these options, there are pros and cons.  Even if you choose an option that has a short-term negative impact on your credit score, you can reverse the damage by making on-time payments and refraining from running the cards back up, Jacob says.

The key is to decide on your balance-transfer strategy and stick with it.

“Anyone who tells you that you can count on eliminating debt quickly is either misinformed or dishonest,” says Berman.  “With patience and perseverance, though, it can be done.”

See related:9 things you should know about balance transfer cards, Balance transfer calculator, 6 steps to a successful credit card balance transfer