Why Do Balance Transfers Make Sense?

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The following is a guest post. Enjoy!

Why Do Balance Transfers Make Sense?

Managing credit card debt can be challenging, difficult and depressing at times. However, there are options for almost any situation. Although balance transfers are not the answer for every issue, in certain instances, credit card balance transfers of existing debt makes very good financial sense (and cents as well!). They can be tricky to navigate, and there are some hard truths you need to be aware of before you tackle the challenges of balance transfers. Read on to find out more.

It’s Not As Good As It May Appear

Credit card companies are not making these offers because they like you or from some altruistic motivation. They are out to make money, and they are banking on the fact if you transfer your balance at a 0% rate, you will be unable to pay that balance by the time the interest rate takes a jump to something much more expensive for you. In the meantime, they may charge fees for a transfer, on new purchases and other hidden charges of which you may be unaware if you haven’t read the agreement thoroughly.
Do yourself a favor. Before you commit to transferring a large balance to take advantage of a 0% rate and think you’re making a wise choice, read over the accompanying agreement with a fine-toothed comb. Make sure you’re getting what you think you’re getting and avoid any nasty surprises.

Other Considerations On Balance Transfers

Keep in mind that balance transfers have time limits. Mark your calendar when the special offer ends, and then back up two months. Mark your calendar again so you can start shopping around or make adjustments if you aren’t going to be able to pay off your balance. The credit card company sure isn’t going to remind you. Remember, they want your money, and if you aren’t vigilant, they’re going to get it.

Don’t Miss This Date

One other important factor is if you do decide to transfer your balance; make even one late payment and you’re in trouble. You will lose that lovely 0% and will be charged a much higher and more painful interest rate. You definitely need to make those payments and make them on time. Additionally, any payment will be applied to the newest purchases, so it’s an excellent idea to keep new purchases on another credit card in order to pay down the principal on the transfer account.
Balance transfers can be a life saving strategy if you are attempting to get a handle on your credit card debt, but only if you know the pitfalls to avoid. Many people have used 0 % balance transfers successfully and there’s no reason you can’t too. Just be aware that too much “card hopping” can hurt your credit score. Hopefully, one transfer is all it will take to get you back on track.

How about you all? Have you ever used a balance transfer to help pay off credit card debt? Was it effective? Did you pay down the balance before the 0% balance transfer period ended? How did you use the card after the 0% balance transfer period ended?


Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

  • I have been very fortunate so far in life to avoid student or credit card debt (let’s keep our fingers crossed that it stays this way), so I have never personally had to use one of these 0% balance transfer offers/deals.
  • However, I do think that they can be a very useful strategy for reducing your debt, as long as you are disciplined and follow the advice given in this article.
  • One other utility of these 0% balance transfer offers is that they can be used as bargaining chips when talking with your credit card company to negotiate a lower interest rate over the phone. This can be done by telling your current credit card company that you will transfer your balance to a 0% balance transfer offer if they don’t give you a lower rate. Nice right?!
  • This article is definitely correct regarding the advice that before using a 0% balance transfer offer, you need to read through the details very closely to determine what fees will be charged.
    • The normal type of fee that is charged with balance transfers is an up-front fee of 3-5% of the balance being transferred.
    • Even though this may seem like quite a bit at first, it will most likely be less than paying 10-20% APR on a balance that compounds daily! Yikes!
    • Jonathan @ My Money Blog provides a good list of 0% balance transfer offers with fairly low fees at the following link – Best Pre-Screened 0% Balance Transfer Credit Cards. This list would be a good place to start if you are thinking about embarking on the 0% balance transfer journey.

***Photo courtesy of http://farm4.static.flickr.com/3276/3027534098_f568868b9e.jpg

Comments

  1. I never used a balance transfer! I have received numerous offers of zero interest and no cost balance transfers. They are very attractive, but I would think you have to be very disciplined to come out okay. The credit card companies are hoping you will miss the payoff date. Why else would they be offering such a sweet deal. This is a good example of “there is no such thing as a free lunch”.

  2. I never used a balance transfer! I have received numerous offers of zero interest and no cost balance transfers. They are very attractive, but I would think you have to be very disciplined to come out okay. The credit card companies are hoping you will miss the payoff date. Why else would they be offering such a sweet deal. This is a good example of “there is no such thing as a free lunch”.
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    • Well said krantcents. I've known several people that used these deals just to invest the money they received in a high yield savings account (which is not that high these days). I think it is do-able, but it sure would be a headache!
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  3. Best Debt Care says:

    We can consolidate our credit card amounts into a single one by balance transferring the amounts on the card with high APR to low APR. This will save a lot of money on interests. Also instead of paying multiple payments to credit cards, only one single payment can be given. Thus effectively, the payments can be repaid on time without missing the deadline & do not have to remember all the multiple payment dates, saving on time & money.

  4. Brian Rakowski says:

    Hi Jacob,

    That’s really helpful!

    One thing I’ve heard recently is that you should make sure the bank which you’re transferring to is different than your current bank, otherwise your transfer could be declined (ie. A hotel rewards and airline miles card can be issued by the same bank even though they’re different “brands”).

    Is that true?

    Have a great day!

    Brian

    • Good question Brian. I actually haven't had to do a balance transfer myself, so I am not sure. Any other readers out there have any ideas on this?
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