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Why Balance Transfers and Rewards Do Not Mix

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If I had a dollar for each time a person asked me how they can earn rewards on a balance transfer, I would be filthy stinking rich. Many people seem to believe card issuers will grant you rewards on transferred debt, or worse, that transferring the debt to a rewards card would be a smart financial move.

Here’s the reality: Credit card rewards and balance transfers do not mix — or, at least they shouldn’t.

For starters, card issuers do not grant rewards on balances transferred from other credit cards (or cash advances). In other words, you only earn rewards on purchases.

Not only that, but rewards credit cards are probably the last type of credit card you want for a balance transfer. While the average credit card APR is currently over 17%, some of the top travel credit cards charge rates considerably higher than that. Even my beloved Chase Sapphire Reserve comes with a variable APR between 19.24% and 26.24% based on your creditworthiness.

Some cards do offer attractive balance transfer offers and rewards on new purchases, but I wouldn’t recommend signing up for those either. The popular Chase Freedom is an example in this realm. Not only does this card offers 5% cash back on up to $1,500 in bonus category spending each quarter (then 1%) and 1% back on other purchases, but you earn $150 in bonus cash after you spend $500 in three months. You also get 0% APR on purchases and balance transfers for a full 15 months (a balance transfer fee of 5% does apply).

The problem? You could easily transfer high-interest debt then use your new Chase Freedom card and the temptation of rewards to rack up even more. Once that 15 months is over, you’re stuck with whatever’s left of your old balance plus your new debt at the Chase Freedom’s standard rates — or a 17.24%–25.99% variable APR.

Sound unlikely? Trust me — it’s not. This is exactly what happens all the time when people believe they can pay down debt without quitting credit cards.

How to Use a Balance Transfer to Pay Down Debt

If you have high-interest credit card debt you need to pay off, let me give you some advice: Stop using credit cards!

You’re going to have a much harder time paying off debt when you’re still using credit cards for your regular purchases. I suggest switching to debit or cash and coming up with a monthly budget and plan to pay off your debt. In the meantime, stash your credit cards away in a sock drawer or store them in a safe.

You can sign up for a balance transfer card that will help you save on interest as you go, but these cards only work if you stop using credit and stop digging a deeper hole. There are a ton of balance transfer cards that offer 0% APR for 9 to 21 months, but a few of my favorites are the Chase Slate and the Citi Simplicity.

  • The Chase Slate gives you 15 months 0% APR on purchases and balance transfers with no annual fee. There’s also no balance transfer fee for balances transferred in the first 60 days. Keep in mind, you cannot transfer other Chase balances to this card.
  • I also like the Citi Simplicity Card because it gives you 21 months at 0% APR for balance transfers and 12 months at 0% APR for purchases. There is a 5% balance transfer fee, but it can be beneficial to pay this fee to get those extra months with no interest. Like Chase, Citi won’t let you transfer balances to this card from another Citi credit card.

Whether you choose to get a balance transfer card to help you save on interest or not, do yourself a favor and stop using credit cards for purchases if you’re in debt. You may never get out of debt if you keep racking more up, and the last thing you need is an incentive to spend more to earn rewards.

Do you think balance transfers and rewards mix? Why or why not?

[Image Source: Shutterstock]

Holly Johnson
Holly Johnson is a financial expert and award-winning writer whose obsession with frugality, budgeting, and travel plays a central role in her work. In addition to serving as Contributing Editor for The Simple Dollar, Holly writes for inspiring…
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