Yes, many of us small streamers have collected balances below the payout threshold. That money is basically useless and sits for months (or even years) and can't be used.

If there was a way to use that payout balance to buy subs/bits it would allow smaller streamers to benefit even from just a few subs/bits spent on their stream and encourage them to sub to more streams.

The price of a sub would still be the same at purchase (so it wouldn't impact the price) and twitch still get's their split, so it wouldn't change anything from twitch side. The only difference is you could spend your balance instead of paying from paypal/card.

This would work the same as any other service with an available balance... steam, patreon, etc. If you have a balance on your account, you can use it to pay for the things you want.