Why you should always have a balance transfer credit card in your wallet

I've followed TPG's 10 credit card commandments, but there's an exception to one of them: "Thou shalt pay thy balance in full." That's a rule to live by. Otherwise, carrying a balance month to month accrues interest charges, which can become burdensome. It also negates any rewards earned, as the interest charges are substantially more than any rewards or cash back you earn.

The exception to the first commandment is when an unexpected large purchase or an emergency occurs that requires you to spend several thousand dollars that you would not have spent otherwise. Rather than accruing interest, consider keeping a balance transfer credit card in your wallet.

I've certainly found myself in several situations over the last decade where a balance transfer card helped me pay a large balance over time. Let's talk about why it's beneficial to keep a balance transfer credit card in your wallet.

There's no cost in keeping a balance transfer credit card

One of the best aspects of keeping a balance transfer credit card in your wallet is that they typically do not have annual fees. As annual fees for premium credit cards continue to rise, it's a relief to know that holding on to a balance transfer credit card year after year won't cost you a penny.

I applied for the Discover it® Chrome Card in 2014 and have had it for over 10 years now. My biggest reason for keeping the card is the lack of an annual fee; otherwise, it wouldn't be worth it. Every other month, my Discover it Chrome gives me a balance transfer offer, and over the years, I've taken advantage of great offers for a 0% annual percentage rate.

Applying for the card was an investment; although I received a hard pull on my credit initially, it was a one-time inquiry, and I've saved thousands of dollars over the years.

The information for the Discover it Chrome Card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Related: What is a balance transfer fee?

A balance transfer credit card can improve your credit score

In my experience, carrying a balance transfer credit card and using it appropriately has always improved my credit score.

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When you apply for a balance transfer credit card, you'll experience a temporary drop in your credit score due to the hard pull. After a few months, your score will increase because your total line of credit has increased.

Several years ago, an emergency room visit resulted in a hospital bill for a few thousand dollars. Although I paid the bill using my Chase Sapphire Reserve® (see rates and fees), I knew I would be unable to pay off my balance in full anytime soon, resulting in interest — or worse, falling behind on payments and being delinquent.

Instead, I transferred the outstanding balance to my balance transfer credit card. This helped my credit score in two ways. I was able to make consistent payments on my balance transfer card, and it decreased my credit utilization on my Sapphire Reserve. Both factors contributed to my credit score, and over the next several months, I saw my credit score increase.

The final way a balance transfer credit card helps my credit score is through credit limit increases. When you use a balance transfer credit card responsibly, the issuer is likely to raise the credit limit, or you can request an increase. I often request a credit limit increase on my Discover it Chrome after each balance transfer is paid off.

Recently, I paid off $8,000; when I requested an increase, I was approved for an $8,000 boost to my credit limit. This reflects positively on my credit report because it decreases my overall credit utilization by increasing my available credit across all accounts.

Related: What is the difference between a hard and soft pull on your credit report?

Balance transfer credit cards are more flexible than ever

In the past, balance transfer credit cards were strict on which types of debt could be transferred. If you wanted to pay off a high-interest debt, it had to be directly paid off by providing the balance transfer credit card with the account number of the debtor account.

Another option was to request a balance transfer check from your issuer and write a check to the debtor.

Nowadays, some issuers are flexible about how you can receive the funds from a balance transfer. When initiating a balance transfer online, you may be presented with an offer to deposit the funds into your checking account. This type of flexibility is helpful if the debt is not with another creditor or if you need the cash to make a large payment elsewhere.

Last year, I was moving houses; the company I selected, although highly rated, only accepted cash. In this situation, I was able to transfer the cash amount to my checking account ahead of time. The amount owed on my balance transfer credit card showed just like any other balance, and I was able to pay off the balance within six months without accruing interest.

Related: What happens to your credit card after a balance transfer?

Bottom line

The key takeaway is to spend responsibly and always within your means. Don't view a balance transfer credit card as a way to spend now and pay later for all purchases. Instead, consider it an investment in your finances and a lifeline for situations when large or unexpected purchases may occur.

Keeping a balance transfer credit card and using it throughout the years is a good way to protect your savings and checking account balances. You have the flexibility to use cash in other situations, such as a down payment on a home or startup funds for a business.

In the meantime, proper use of a balance transfer credit card can also improve your credit score, helping you attain a premium card that was once out of reach.

Related: The best balance transfer credit cards to add to your wallet