Do You Still Earn Points When You Balance Transfer Your Spending to Another Card?

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Million Mile Secrets reader, Heather, asked:

If I applied for the Starwood Preferred Guest small business card and used it to pay my taxes, can I transfer the balance to another card, like the Chase Freedom?  Then I’ll have more time to pay my taxes off.  But will it still count towards meeting the minimum spending requirement on the new Starwood Preferred Guest card?

I know it’s not ideal, but I’m stuck with a large tax bill.  Because I can’t pay my taxes by the April 18th deadline, I’ll have to pay the IRS 3% interest on the amount I owe.  I thought I could try to pay my tax bill with a credit card and (at least) earn points & miles for free travel.

Great question Heather!  April 18, 2016, is the IRS filing deadline this year.

Because Heather owes taxes, she could ease the pain of her tax bill by meeting the minimum spending requirements on a new credit card.  And earn points & miles at the same time!

But she ALSO wants to transfer her balance to a card with a promotional 0% intro APR on balance transfers, so she’ll have more time to pay off the balance.

Does is make sense to put a large expense on a credit card?  And if you transfer the balance will you still earn points & miles?

I’ll answer these questions and explain whether or not it’s a good idea!

Should You Use Credit Cards for Major Expenses?

Credit card sign-up bonuses are the fastest way to earn Big Travel with Small Money.  But some cards come with large minimum spending requirements that can be difficult to meet.  Putting a major expense on the card, like your tax bill, is an easy way to quickly earn the bonus.

This is usually only worth it if you plan on paying off the charge on your card right away.  Because paying interest and fees can negate the value of any miles and points you earn.

Heather mentioned applying for the Starwood Preferred Guest Business Credit Card from American Express, which has a $5,000 minimum spending requirement.

If Heather applies for either the personal or small business card, she’d get:

• 25,000 Starwood points after you spend $3,000 on purchases in the 1st 3 months of opening your account (personal card), OR
• 25,000 Starwood points after you spend $5,000 on purchases in the 1st 3 months of opening your account (small business card)
• 2 points per $1 you spend at Starwood hotels (includes Aloft, Design Hotels, Element, Four Points, Le Meridien, Sheraton, St Regis, The Luxury Collection, Tribute Portfolio, Westin and W brand hotels)
• 1 Starwood point per $1 you spend on everything else
• Unlimited use of Boingo Wi-Fi hotspots (excluding in-flight)
• For small business cardholders, access to Sheraton Club lounges (free breakfast and hors d’oeuvres) for cardholder and 1 guest staying in the same room (3rd-party bookings are excluded).
• 2 stay credits or 5 night credits toward Starwood Elite Status
• $95 annual fee, waived for the 1st year
• No foreign transaction fees
• Terms & limitations apply

Note:   American Express only allows folks to get the sign-up bonus ONCE per person, per lifetime on ALL their cards.

The IRS will allow Heather to pay taxes with a credit card, but she must use an approved 3rd-party payment processor. 

These payment processors charge 1.87% to ~2.25% of your bill.

So, let’s say Heather owes $5,000 in taxes.  If she uses her AMEX Starwood Preferred Guest small business card, she’ll meet the $5,000 minimum spending requirement for the bonus.  And she’d pay ~$5,094 if she paid her tax bill with the card ($5,000 X 1.87% = ~$94).

In effect, she’d be paying ~$94 in order to earn the bonus for the AMEX Starwood Preferred Guest small business card.  Plus the additional 5,000 Starwood points she’d earn for charging $5,000 to the card.

That’s a pretty good deal considering how valuable Starwood points can be.  And how hard they are to earn!

But because she can’t pay off the balance in full right away, she wants to transfer the balance to a 0% interest credit card.

How Does a Balance Transfer Work?

A balance transfer is when you apply for a card and use the credit line from your new card to pay off the balance on another card.  Many cards offer balance transfers, but they usually charge a fee of 3% to 5% of the balance.  And you can NOT transfer a balance to a card with the same bank.

Heather said she was considering transferring her AMEX Starwood Preferred Guest card’s balance to the Chase Freedom card.

Note:  The balance you transfer to the Freedom card will NOT count towards the Freedom’s minimum spending requirement for its sign-up bonus.  Because, as with most cards, only purchases count towards the minimum spending requirement.

The Chase Freedom card has a $5 or 5% of the amount of each transfer fee, whichever is greater (as of April 10, 2016).  And that’s actually quite high!  Most cards charge a 3% fee, and sometimes even offer 2% balance transfer fee promotions.  Heather could even keep an eye on snail mail for promotional balance transfer checks!  

So, if she transferred her  ~$5,094 balance to the Chase Freedom card, she’d pay ~$255 (~$5,094 X 5%).

Is It Worth It?

It depends on how much value you can get from the points and miles you’re earning.

For example, Heather could use 30,000 Starwood points to stay at the luxurious Starwood Category 7 Prince de Galles hotel in Paris.  Rooms here can cost $1,000+ per night.  So paying ~$300 or so in fees could be worth it.

I’d probably only use this method if I had a lot of minimum spending to meet in a short amount of time.  Because there are lots of other (free or cheap) ways to meet minimum spending!

If Heather wants to pay fewer fees, she could consider the Chase Slate card.  It has a 0% intro APR on balance transfers for the 1st 15 months and there’s NO fee to transfer a balance in the 1st 60 days of having the card (then 16.74%–25.49% variable) (Correct as of March 2018.)

But it doesn’t have a sign-up bonus and does NOT earn miles, points, or cash back.

Will She Lose Her Miles & Points If She Does a Balance Transfer?

No.  Heather will NOT lose her miles and points if she transfers the balance from her new card to another card with 0% interest.  

But you have to be careful with 0% interest cards.  Heather should be sure she can pay off her balance within the 0% APR promotional period to avoid paying interest.  Because interest will definitely negate the value of the miles or points she’s earned!

Bottom Line

Credit card sign-up bonuses are the fastest way to earn Big Travel with Small Money.  And putting a major expense on the card, like your tax bill, is an easy way to quickly earn the bonus.

You can pay your IRS tax bill with a credit card.  But it will cost you 1.87% to ~2.25% in fees.   

This is usually NOT worth it, unless you want to quickly meet credit card minimum spending requirements.

If you want to transfer your balance from a miles and points earning card to another 0% interest card, you will NOT lose your miles and points.   

But ALWAYS crunch the numbers to make sure the fees you’re paying make sense.  Because fees can often negate the value of the points and miles you earn!