Should You Transfer Debt to a Low Interest Credit Card?
When we were in the midst of paying off over $30,000 in credit card debt, one of the options we used was transferring high interest balances to lower interest credit cards. In fact, we sought out 0% balance transfer offers. While this strategy helped save hundreds of dollars in interest, you have to make sure that transferring your debt to lower interest credit cards is a smart move for your financial situation.
Check Your Credit Score
Even though we were swimming in debt, we always had high credit scores because we never missed payments. Because of our credit scores, we were eligible for all kinds of balance transfer options for new cards and for cards we already had. Believe it or not, we did have a few cards that did not have a balance, so those were the ones we chose to use. If you have good credit, offers will be plentiful, which is a big reason we got into so much debt in the first place.
If you don’t have stellar credit, you can make some changes and get a higher score relatively quickly. If you are so behind on payments that there is no way to catch up, credit counseling or debt consolidation might be your best option.
Look at the Fine Print
When choosing the best credit card for a balance transfers, always read the fine print. My husband and I both had identical looking balance transfer offers for a Bank of America card for 12 months at 0% interest. However, my offer carried a 3% transfer fee, and his was 4%. This information was in tiny writing at the bottom of the page, so don’t forget to read everything before you decide.
Fees and Promotional Periods
When doing a balance transfer, there will always be a fee, usually 3%-5% of the total balance transferred. We transferred about $15,000, so at 3% that would have cost $450, which would have still saved money because the interest rate was costing us almost $200/month. We searched a bit harder and found a card that gave us a 0% offer for 18 months with a 1% fee. I was actually glad to pay that $150 because it meant no more interest!
Along with a fee, there will be a promotional period. Whatever payoff timeline you choose, make sure you will be able to pay off the balance during that promo period. Otherwise, you’ll get hit with a huge interest charge. Of course, you could transfer the balance again, but there is never a guarantee that a good offer will be available in the future. I would not transfer more than I knew I could pay off. There are some great calculators at Bankrate that can help if you aren’t sure about the payment amounts or if it makes sense to transfer a balance.
Don’t Always Pay Your Credit Card First
While I strongly believe everyone should be responsible for the consumer debts you rack up, there are times when I would give up on making credit card payments. Many people get so hung up on paying the credit cards that they have to slack on paying secured assets. If you don’t pay your credit cards, your credit score will suffer, and you may get calls from collection agencies, but ultimately, that’s all that can happen.
If you stop your car payments, Mr. Repo Man will come knocking on your door. How will you get to work to earn a paycheck then? Even worse, I’ve seen people, family included, who have taken out a home equity loan or refinanced a mortgage to get money for paying credit cards. While interest rates might seem lower, if you end up not being able to make the mortgage payment, you’ll lose your house. Never put an unsecured debt, like credit card balances, on a secured asset, like your house.
While it might seem fun to get into debt, paying off credit cards is not fun at all. The best way to avoid the problem is to never buy things on credit that you know you don’t have cash to cover. If you are like me and didn’t follow that rule, a balance transfer to a lower interest credit card can be a good option for paying off debt. After getting out of debt, you get to are able to use credit cards for fun things like rewards or cash back. Getting rid of credit card debt forever is a wonderful feeling, and I would use whatever steps are reasonable to achieve that.
Have you ever used a balance transfer to get out of debt? What’s the dumbest thing you’ve ever put on credit?
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Kim, I really enjoyed this post. Not only do you address the balance transfer option but I love how you explained the importance of credit card payments in comparison to payments for secured assets. Thanks for the incredible info!
I transferred balances consistently while I was paying off my credit cards. I saved a lot of money, but I only did it because I knew I could pay off the card before the promo ended. It would have not worked if I would have let the promo lapse.
I agree it’s a smart move if and only if you know you’ll pay it off or have somewhere else to transfer.
I’ve done that twice to a zero percent card and managed to pay the debt off before it starting getting hit with interest. I think it’s worth it, as long as you factor the transaction fee into it! The best plan is to never get into into credit card debt to start with!