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Pushing yourself to meet minimum spend requirements for high introductory bonuses, or to rack up enough points to cover your next big trip, happens easier than you might think. When this happens, you might feel the burn of not being able to pay your balance in full.
Balance Transfer Cards are a great way to get debt under control. By transferring a balance from one card to another, usually one with an excellent 0% interest introductory period, you can save thousands in interest while paying off your debt.
But when rewards points are involved, you might have questions about what will happen to them during the balance transfer process. Will you lose them? If you transfer a balance to a new rewards card, will you earn them?
Here’s everything you need to know.
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Transferring balances will not lose or gain rewards
The good news: a balance transfer usually doesn’t affect your already earned rewards.
If you’re considering transferring a rewards card balance, you may be worried about losing your rewards points. However, balance transfers are generally treated as a payment from your new creditor (the balance transfer card) to your old card. The good news is that you won’t lose any earned rewards.
The bad news: If you’re thinking of opening a rewards card and transferring an existing balance to earn a giant sign-up bonus, you’re out of luck – most cards won’t allow it.
For example, the Chase Sapphire Preferred® Card currently offers new customers the opportunity to earn 60,000 bonus points after spending $4,000 on purchases within the first 3 months of account opening. You might think about transferring stubborn debt and racking up points, but that’s wishful thinking. The offer details specifically state that qualifying purchases for bonus points “do not include balance transfers”.
If you’re unsure if you’ll meet the minimum card spend to earn a generous bonus offer, consider using your card for everything: groceries, coffee, restaurants, and more. In addition, it is now possible to make rental payments with credit cards through third-party processing platforms, such as Plastic and LocationTrack. Keep in mind that these platforms will cost you additional fees and it is extremely important to pay your balance in full each month.
Use these services and spend responsibly. If you go overboard and end up paying interest charges, you’ll quickly nullify the value of any rewards earned.
Should I close my card after transferring my balance?
If you’re considering closing a credit card after transferring its balance, there are a few things to consider.
Length of credit history is 15% of your FICO credit score. In addition, you may see your credit utilization rate increase, which is the ratio between the amount of your debt and your overall credit limit. Credit usage accounts for 30% of your FICO score. By closing the rewards card, you reduce your overall limit. This can negatively affect your credit score if your balance transfer card limit is lower than the closed card limit.
Consider these examples:
- You have three credit card with limits of $5,000 each, totaling an overall credit limit of $15,000. Your rewards card has a balance of $2,000 and is the only card you carry a balance on. Your credit utilization is around 13%.
- You end up transferring the balance from the rewards card to a balance transfer card with a $2,000 limit and closing the rewards card. Your new overall credit limit is $12,000 and your credit utilization increases to approximately 17%.
- If you have debt on another card, your credit usage will increase even more. For example, you end up transferring the balance from the rewards card to a balance transfer card with a limit of $2,000 and you close the rewards card, but you have an additional balance of $1,000 on another card. . Your new overall credit limit is $12,000 and your credit usage limit increases to 25%.
It is recommended to keep your credit utilization less than 30%. If you’re not strategic with your balance transfer and leave old accounts open, you may not pay any interest on your debt while you pay it off, but your credit score could seriously drop in the process.
It is also important to note how FICO scoring models are changing this year. Now, instead of looking at a snapshot of a consumer’s debt each month, overall debt levels over time will be considered when calculating a credit score. If you’re considering doing a balance transfer to reduce your debt, not taking on new debt is a crucial part of the strategy. Do whatever is necessary to avoid continuing to slip with your card: store it in a sock drawer or freeze it.
What happens to your points if you close a map?
If you choose to close a rewards card after completing a balance transfer, the type of card you have and whether you have other cards with the same bank will determine what happens to your points.
Any points earned with a general rewards program that are not used or transferred to a partner program (for example, transferring your Chase Ultimate rewards to United) will be forfeited, meaning you will not be able to access them once the account is closed . You can transfer loyalty points directly to a partner program of your choice, usually from the card’s website.
However, if you have multiple credit cards that earn the same type of points, you’re out of luck. For example, if you have a Chase Sapphire Preferred and a Chase Freedom Flex℠both earn Chase Ultimate Rewards points, you can transfer points from Sapphire Preferred to Freedom before closing Sapphire Preferred.
Airline and hotel loyalty cards are a little different. Since these cards are directly linked to specific loyalty accounts, the miles or points earned are automatically transferred to the airline or hotel account. As a rule, the card network sends the partner program information on the number of miles earned each month. Since the miles or points are in the loyalty program, not a rewards portal, you won’t lose any of them if you end up closing the card account. Instead, the airline’s or hotel’s points expiration policy will apply.
Overall, balance transfers are a great way to save while paying off debt, especially when they offer long promotional periods at 0% interest. But if you’re transferring a rewards card balance, you need to make sure you have a strategy for what to do with your points if you plan to close the account.
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