At the beginning of this whole get out of debt thing I decided that I wasn’t going to do any balance transfers. If you think about it, Balance Transfers are exactly what they say they are, a transfer of a balance from one place to another. To me, they didn’t fit with our whole debt payoff plan. We were going to debt snowball this thing all the way until the very end. Then we got to our student loans, and it was time for us to be more “woke” about our situation.
I’ve done three balance transfers pre Broke on Purpose. They were part of my feeble attempts at getting out of debt way back in the past. In some ways, they worked, but in the grand scheme of things they didn’t because I wasn’t disciplined enough. Like many people, I was guilty of a never ending cycle; I would do a balance transfer and consolidate all my debt into one bill, but then turn around and use the cards that I just “paid off.”
This is exactly why I don’t recommend balance transfers to anyone who is newly starting a debt payoff journey. In my opinion, you have to have a sense of maturity and responsibility to be able to handle the temptation that comes with doing a balance transfer. Think about it. After the transfer you’ll have credit cards with a zero dollar balance and the temptation to use those cards is going to be something serious!
If you’re thinking about doing a Balance Transfer here a few things you should consider.
Am I really serious about getting out of debt?
If you’re just wanting to a balance transfer to make things “easier” than you’re doing it for the wrong reason. Sure having one payment will give you fewer bills to pay but if you aren’t planning to change the way you handle money it’s pointless. Balance Transfers usually require you open a new credit card or you can use a credit card you already have. If you don’t want to open another credit card then maybe a consolidation loan is a better option for you.
Is doing the transfer worth the transfer fee associated with it?
Many balance transfers come with transfer fees. Usually, they’re a minimum of $10 or 4% of the total amount you want to transfer. Before taking this plunge be sure to do the math, is the money you’re going to save with the transfer worth the amount you’re going to be charged as a transfer fee? When we transferred over $17,000 in student loan interest to a 0% interest credit card, we were assessed over $700 in balance transfer fees. After doing the math, we realized that we would be saving money to do the transfer as our interest was accruing at $409 a month. We calculated that it would take us six months to pay off the balance transfer thus saving us over $1700 in that amount of time. There are cards out there that no transfer fees associated with them. Just be sure to read the fine print.
Can I handle the terms?
Don’t accept the first offer you find when deciding to do a balance transfer. Some offers are better than others, and you’re going to want to find terms that you can handle, and by handle,e I don’t mean “in a perfect world.” Some transfers offer up to 12 months at 0% interest while others can give you a longer time to pay it off, up to 18 months or more, but charge a small interest amount of 1.99%. Since Marcus and I planned to attack our transfer, we settled for a 0% interest transfer for 12 months.
There are some balance transfers that come with a fixed rate for a certain amount of months, meaning you don’t have to worry about anything changing as long as you make the payment on time, however, these are more properly termed “consolidation loans.”
What happens if I can’t pay it off in time?
If you can’t pay your balance transfer off in time in most cases, you’ll find that your interest rates will severely increase. Some can jump as high as 19.99%. This is why it’s important to understand the terms before you sign up and to be sure you can pay it off before time runs out.
We currently have a little over $4100 left to pay off on our current balance transfer which started at $18,539 at a term of 0% interest until June 2017. We hope to have this paid off by mid-November. Once that is paid, we’ll be officially caught up on our Student Loan Interest and can finally start making payments that will go towards the principle. We’re unsure at this time if we’ll be utilizing another balance transfer, again it all comes down to the math, but we’re happy that we took the plunge and did it this go around.
Links to Check Out