What to Do If Your Balance Transfer Limit Is Too Low

You're trying to fix an expensive financial mistake: You ran up too much debt on your credit cards, and now you're carrying a balance of thousands of dollars from month to month. The interest that this balance generates makes it even harder to pay down the debt.

Consumers often turn to a balance transfer — moving high-interest credit card debt to a new card offering a promotional 0% APR — to help tackle their debt repayment. Once you move your debt to your new card, you'll have a window (usually between six and 18 months) to pay off the balance before that promotional APR window closes and the card's actual interest rate kicks in.

But what if the balance transfer limit on your new card is too low to accommodate your existing credit card debt? What steps can you take to reduce the burden that high interest is adding to your credit card problem?

Call the financial institution behind your balance transfer credit card

Your first step should be to call the bank or financial institution that issued your new credit card (you'll find the number on the back of the card). Simply ask a representative if you can have a higher balance transfer limit. Explain that you want to transfer the entire balance from another card, and that the limit on your new card isn't high enough to accommodate this.

Now, there's no guarantee that this will work. The issuers of credit cards rely on a formula to determine your credit limit. That formula includes your credit score, debt-to-income ratio, and the income you earn. If your financial numbers aren't strong enough to justify the higher limit, your issuer probably won't budge. You won't know, though, until you ask. (See also: 7 Important Things You Should Know About Balance Transfer Cards)

Transfer as much of your balance as you can

Say you owe $10,000 in credit card debt, but your new balance transfer card comes with a limit of just $7,000. You can always transfer $7,000 of your $10,000 debt to your 0% interest credit card, and leave the remaining $3,000 on your current card. That's not ideal, but at least you are eliminating high interest on a good portion of your debt.

Just make sure to pay down both of your balances. And make sure to pay off the amount on your 0% interest card before that card's actual interest rate kicks in. Otherwise, you are defeating the purpose of a balance transfer. (See also: Step-by-Step Guide to Doing a Balance Transfer on Credit Cards)

Apply for a personal loan

You might also apply for a personal loan from a bank, credit union, or other financing source, and use the money from this loan to pay off your credit card debt.

Once you take out a loan, you'll have to pay it back in monthly installments. There are some advantages to this approach. First, you'll have a set payment each month, so you can budget for it more easily. Secondly, making payments on a personal loan, as long as you make them on time each month, will help your all-important credit score. Moving debt from a credit card into a personal loan will also help something known as your credit utilization ratio.

Your credit utilization ratio measures how much of your available credit you are using. The higher this ratio, the worse it is for your credit score. If you have a combined credit limit of $20,000 on your credit cards, and you have $10,000 of credit card debt, you are using 50 percent of your available credit. If you pay off $5,000 of that debt with a personal loan, you are now using just $5,000 of your $20,000 of available credit, instantly improving your credit utilization ratio. Yes, you still have the same amount of debt — some of it has simply been moved to a personal loan — but your credit score will improve. (See also: This One Ratio Is the Key to a Good Credit Score)

The key with a personal loan is to find one that comes with a significantly lower interest rate than the ones attached to your credit card debt. Otherwise, there is no point.

A final tip

Once you initiate a balance transfer on your credit card debt, get serious about paying it off. Your goal is to eliminate this debt before the 0% APR offer disappears and your new card's interest rate kicks in. You'll also need to get your spending under control. Don't continue to run up massive amounts of debt on any of your credit cards. If you do, even that 0% interest rate won't be much help. (See also: When to Do a Balance Transfer to Pay Off Credit Card Debt)

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