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A family member of mine owes significant debt on several high-interest credit cards. They are struggling to make much more than the minimum payments, which is keeping them in a cycle of debt.

I have an offer for a credit card with 0% interest for 21 months that could cover their entire debt, and this got me thinking. If I want to transfer their debt onto the card in my name, they would be able to pay it off much more quickly because their payments would stop going towards the interest charges, breaking out of a cycle of debt.

I didn't see anything in the offer letter they sent me forbidding it, but I'm thinking they may disallow it because they made the offer based on my (very good) credit score, which will go down if I accepted this debt and my credit utilization went up.

  1. Could I use a balance transfer offer to me to accept someone else's credit card debt?
  2. As a secondary consideration, would it be possible to negotiate smaller balances with the high interest cards based on an immediate cash payment, and then use the balance transfer to provide that cash payment?

I am not looking for advice on the wisdom of doing this, I am aware of the pitfalls. I am looking for answers about the practical limitations of using a balance transfer to accept and minimize someone else's credit card debt.

  • 2
    Check for restrictions on paying off a credit card owned by the same company. They sometimes don't allow that. – mkennedy Nov 23 '16 at 18:55
  • I'm not sure off the top of my head what it would be, but there must be a tax implication in here. – quid Nov 23 '16 at 19:36
  • @quid maybe, but that's the least of my concern when reading this. – JoeTaxpayer Nov 24 '16 at 0:33
  • Many 0%-interest balance transfer offers come with additional options that send the card-holder a bunch of checks that can be used to pay an ything including taxes. The money thus used counts as a cash advance from the credit card, and since the payee receives the full amount (instead of the typical amount charged minus 3-5% that a merchant receives), such cash advances definitely are charged a 3-5% "service fee" even if the interest is waived. Be sure that you FULLY understand exactly how 0%-interest offers work; It is not as straightforward as it appears to be at first glance. – Dilip Sarwate Nov 24 '16 at 2:26
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The implied intent is that balance transfers are for your balances, not someone else's. However, I bet it would be not only allowed but also encouraged. Why? Because the goal of a teaser rate is to get you to borrow.

Typically there is a balance transfer fee that allows the offering company to break even. In the unlikely event that a person does pay off the balance in the specified time frame the account and is then closed, then nothing really lost.

Its hard to find past articles I've read as all the search engines are trying to get me to enroll in a balance transfer. However, about 75% of 0% balance xfers result in converting to a interest being accrued. If you are familiar with the amount of household credit card debt we carry, as a nation, that figure is very believable.

To answer your question, I would assume they would allow it. However I would call and check and get their answer in writing. Why? Because if they change their mind or the representative tells you incorrectly, and they find out, they will convert your 0% credit card to an 18% or higher interest rate for violating the terms. Same as if a payment was missed.

From the credit card company's perspective they would be really smart to allow you to do this. The likelihood that your family member will pay the bill beyond two months is close to zero. The likelihood that a payment will be missed or late allowing them to convert to a higher rate is very high. This then might lead to you being overextended which would mean just more interest rates and fees. Credit card company wins! I would not be surprised if they beg you to follow through on your plan.

From your perspective it would be a really dumb idea, but as you said you knew that.

Faced with the same situation I would just pay off one or more of the debts for the family member if I thought it would actually help them. I would also require them to have some financial accountability.

Its funny that once you require financial accountability for handouts, most of those seeking a donation go elsewhere.

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    I appreciate the advice in this answer, though it includes baseless and unproductive judgements towards the debtor. Sometimes life circumstances change dramatically, and sometimes accepting credit card debt is sadly the best of several bad options. That does not mean they are necessarily irresponsible with money or without the integrity to pay on their promises. – MackM Nov 23 '16 at 19:29
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    It was not my intent to judge the person holding the debt. When speaking from the credit card company's perspective they can only go against historical data as they would likely have no information on the "target" as they are not applying for credit. – Pete B. Nov 23 '16 at 19:55
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    Mack - welcome to Money.SE. I answered a question once, OP asking about a hardship withdrawal from his 401(k) vs taking a loan. He specifically said these were his only two choices, and I gave a great answer with math supporting the loan. Another member voted down, and said the 401(k) loan is never appropriate and offered the advice OP requested that we not. I hope this works out for you. – JoeTaxpayer Nov 23 '16 at 21:31
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I just received a transfer offer -

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Seems to me, they don't care what I do with the proceeds. Options 1 & 2 make that clear.

1

In general, you can do whatever you'd like with the money. Many (perhaps most?) banks offer different ways to receive the money, with the two most popular options being direct payment to other debts, or direct deposit into your bank account. If you choose the latter you can do whatever you'd like with that money once you receive it. Even in the case when you have the bank make direct payments to other credit cards I'm guessing they will not care if it's someone else's name on the account, but that could be bank specific.

Some tips:

  1. 0% interest for X months doesn't mean it's free. Although I have seen 0% interest with a 0% fee before (it's rare), typically there will be a fee of between 1-5% of the transferred amount.
  2. Some banks differentiate between depositing the money into your bank account, and paying off another credit card. If you pay off the balance before the 0% interest expires then it doesn't matter, but if you don't, some banks will treat the remaining balance of money deposited into a bank account as a "cash advance" instead of a "purchase" and typically the cash advance has a higher APR.
1

You were approved for the offer based on your current credit, just like any other offer of credit. The offering bank knows you'll likely use their offer if you accept it. If you accept the offer and load up the new card to the max with your (or your relative's) debt and your score will then change. Depending on the other factors that impact your score this could carry some negative consequences related to your own ability to obtain debt. Also, consequently, this will have a tremendously positive effect on your relative's ability to obtain debt.

I understand that you trust this person enough to be asking this question. No amount of trust protects from the unforeseen. Ultimately while this debt resides in your name, in the eyes of the creditor it is yours. While you could seek legal remedy from your relative if they don't or can't pay, you will be on the hook to the bank. Again, there are unforeseen events, a car accident, a death, etc. If this person passes, that's your debt.

IF (and I can't emphasize the IF enough) I was ever in a position to be considering what you're considering I would do this:

  • Transfer everything over to me.
  • Let my relative's cards sit at zero balance.
  • Have them apply for a 0% balance transfer offer in their own name.
  • Transfer the balance back to them as soon as feasibly possible.
  • I might even buy credit monitoring service on them to monitor their credit worthiness to ensure the debt is moved back to them as soon as possible.

I mentioned in a comment under your question. This feels like it would carry a tax consequence (or maybe benefit) to one or both of you. I have no idea of the legalities, or whether or not any of this violates a cardmember agreement, but as other answers have pointed out, I doubt there is a balance transfer police.

0

We used balance transfer offers from my cards to pay off my wife's cards, and vice versa (BT offers from my wife's cards to pay off my cards). Maybe it was allowed because we had the same address, but maybe it's because the banks don't care.

protected by Chris W. Rea Apr 5 '18 at 20:31

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