The strategy is a wonderful way to put extra money in our pockets. But we must be aware of and understand some very important negatives before we make the decision to pursue this.

Most importantly, implementing this strategy almost always has a negative short-term impact on credit scores. This may be a big deal to us or it may not depending on what our current short-term goals are. Either way it is important that we understand how and why this happens.

When we implement this strategy, our credit score gets dinged for 2 major reasons:

Inquiries- Establishing all this new credit means that we will have a lot of new inquiries on our credit report.

Multiple inquiries sends a strong signal to lenders that we have probably recently taken on a lot of new debt. Multiple inquiries = lowered credit score.

Ratio of debt to available credit- Once we have made our balance transfers into our bank accounts, we will have large credit balances on our cards. When our debt to available credit ratio exceeds 35%, our credit score starts to drop.

Example: We get a credit card with a limit of $15,000. We write ourselves a balance transfer check for $13,000 and deposit it into our bank account. We now have a credit card balance of $13,000 which is 87% of our total credit limit.

This is why anyone with a near term need for a strong credit score should NOT implement this strategy right now. If we plan to buy a home in the near future then we will plan to put this strategy on hold. It still makes a ton of sense to learn the strategy and understand the strategy...but certainly NOT to implement it right now.

When we don't have a short-term need for a strong credit score, it is actually quite entertaining to follow the path of our credit score.

Let's use this space to weed out any other non-qualified candidates for this strategy:

Anyone who is unorganized with their finances must get organized - It is important to be VERY organized in order to do this right. We open and maintain brand new, high interest bank accounts and keep them completely separate from our current ones. We stay on top of our credit card bills and ALWAYS pay the minimum payment on or before the due date.

Anyone who is a chronic spender and can't have a credit card without being overwhelmed by the need to use it should never even entertain this strategy- We use all new credit cards ONLY for making balance transfers into our newly established bank accounts. We do NOT use them for any other reason. Using them for personal purchases will result in paying interest rates on our balances (exactly the thing we are trying to avoid).

Look, we get it...all of a sudden we have more money in our bank accounts than we've ever had. On paper, we look like we're extremely wealthy. We start thinking, "well maybe I can afford this new car that I love because I've got all this money." Wrong! We cannot think this way! We absolutely MUST know that the ONLY purpose for this borrowed money is to make interest off of it.

If we can't stomach a short term hit to our credit score, we should not pursue this- As noted above, our credit score will likely decline in the short-term. If there is an actual reason that we need a high credit score in the near future, we will need to postpone this.

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