Using a balance transfer card for everyday spending is a quite sure way to increase your debt rather than to get rid of it. Your balance transfer card might tempt you with low interest rates for new purchases, or it might come handy in a shop, but watch out for its special hidden caveat called repayment hierarchy. The repayment hierarchy can cause you to actually pay more than double for any item that you buy with the balance transfer card. It can cause you to actually sink in debt lower than ever. It can cause you to lose basically all of the benefits that you gained when you transfered your balance to the new card. And it should be the main reason for never using your balance transfer card for everyday spending. So, what is this dreaded repayment hierarchy and how does it affect you?
Also known as payment allocation hierarchy, the repayment hierarchy basically governs which debt gets paid off first from your credit card. In practice this usually means that when you have several debts, the one with the highest interest rate gets paid off the last. In other words, you pay the highest interest rate for the longest time and the smallest interest rate for the shortest period of time. Unfair, but this is how it works: banks are setting the rules, and they are not charity institutions.
If you thought that you can pay off any of the debts that you have on a card, think again. All you can do is to pay to the bank some money to account for the overall standing debt on one of your cards. However, the bank is the one to choose towards which of the debts of one card your money will count. Does that sound benign? Well, suppose for an instant that you have on your credit card a small debt (say 50$) with high interest rate and a large debt (say 10 000$) with low interest rate. When you make a payment of 50$, guess towards which debt do your 50$ count: towards the large one because it has a lower interest rate! Consequently, after you made your 50$ payment, you will have a debt of 9 950$ with low interest and a debt of 50$ with high interest. The bank obviously prefers that you continue having the debt with high interest rate, as this will bring them more money. The only way to control to which debt your money go is to have a single debt (or at least a single interest rate) on each card that you have. In the case of balance transfer cards, this usually means that you should not add any new debt to that card.
Not all debts are created equal in terms of the interest rate. Each type of debt or even each particular debt can have a different interest rate based on various criteria such as the amount or when it was made. Usually the balance transfer card features a promotional low (or even 0) APR (annual percentage interest rate) for the balance transfered, but it applies the usual interest rate to any new debt. So if you pay something with your balance card, you incur another debt at a higher interest rate than the existing one. And you will be stuck with the higher interest debt for as long as it takes you to repay the initial balance. In other words you will pay the high interest rate for as long as it takes you to get rid of the initial debt. Chances are that it will take you quite a while, otherwise you wouldn't have needed to transfer the balance to a new card in the first place.
Even if the balance transfer card has a promotional APR for new debts as well, it still is risky to use the card for everyday spending. Usually the promotional period for new debts is smaller than the one for the transfered balance. You will not be paying the high interest rate right from the beginning, but you will still be paying it longer than if you would have used another card (or avoided the new debt in the first place). And even a small amount of money can add up to a large amount of money if you continue to pay interest for it for a year or more. So your new couch might cost you in the end 2000$ instead of the 500$ that you paid in the shop due to the interest that you have to pay to the bank for 2 years or more. Even some groceries can become ridiculously expensive this way.
If this is not enough to convince you that the balance transfer card should not be used for everyday spending, there are also a few other things to consider. Remember why you transfered your balance to this new card in the first place? Because you needed quite badly a time with low APR so that you manage to repay your debt. However, if you keep on using the card to buy things, you are actually increasing your debt rather than getting rid of it. Remain focus on repaying your debt before incurring other debts. Otherwise you might find yourself before you know it in an even greater debt than before and without any hope of actually paying it back short of giving all your income to the bank and selling whatever you can sell. Moreover, if you pay off your existing debt first, you make sure that whenever you decide to spend money you get value for it, rather than just pouring money in paying an interest that gives you nothing in return.
So, next time when you feel like using your balance transfer card for everyday spending, think again. If it's really needed, better to use some other card so that you know that you can pay the debt off at the end of the month and don't have to incur interest for it for the next year or more. Better yet, if possible, pay with some real cash: you will clearly see how your hard earned money go away and you might even reconsider whether whatever you are buying is worth it.