Are Credit Card Balance Transfers Still Worth the Effort? – Guest Post
Some people will tell you that credit card balance transfers are a great debt busting strategy. But not so fast. If you’re not disciplined, you just might end up with a lot more credit cards than you started with and a lot more debt, too. If you keep getting more credit cards to use for balance transfers, then the whole strategy backfires.
How does transferring credit card balances work? The idea is to keep moving your debt from high interest cards to low interest ones. That way you keep your interest rates low, and pay more towards your balance. In theory, this sounds really great. After all, who wouldn’t want to lower their interest rates, especially if you can easily move your balance from one of your cards to another, switching when the “teaser” rates expire and your interest goes back up.
But there are some potential problems with this strategy that you need to look out for.
- First, if you don’t remember to transfer before the rates go up, you’ll get a big fat finance charge. And don’t think you’ll get a notice from your bank. No way. That’s how they make their money. So if you don’t keep track of when the rates go up, you can get burned big time!
- Second, if you don’t pay on time – even just once – then your super-duper low rate turns into 19.98% or something outrageously high like that (maybe even higher). So even if the low-interest period is for 6 months or 9 months, if you are late with your payment it ends that month.
- Third, most cards charge a fee for each transfer. So you’ll need to do the calculations to see if the amount you save with lower interest is more than the fee. Usually you will if the low rate is for 6 months or longer, but still a good idea to make sure.
- Fourth, if you only have one card, you’ll need to open more cards for the transfers to work. And the more cards you have, the more tempted you will be to use them. And if you do use them and don’t pay them off right away, then you start the whole cycle of debt all over again! So keep one card in your wallet, and put the rest in a safe deposit box or your sock drawer or anywhere hidden so you won’t use them.
- Fifth, it will still take a long time to get out of debt. So if you’ve got quite a bit of debt, after the initial “wow factor” of the low or zero interest, you have to keep doing this over and over for quite a while. Most people don’t stick with a diet for more than a few weeks, so you’ll need to have lots of discipline and motivation for this to work!
If you keep transferring your balances, eventually you’ll start getting offers from your own credit cards! They don’t like it when you don’t carry a balance, so if you transfer the entire balance to a new card, you’ll get one of these great offers without having to open up a new account. Which makes the process a little easier.
Ultimately, if you decide to use balance transfers, and you stick with this option, it can work. Like any debt relief plan, the key is to stick with it. And if lowering your interest rate is the right solution for you, then it can be a very successful strategy. And you can avoid the need for signing up with a debt management program. But if you are looking for some “get out of debt quickly” strategy, this is not it. In fact, that type of strategy doesn’t exist – unless you have a rich relative who can lend you money.
So make sure you have the discipline to not keep using your credit cards before deciding on credit card balance transfers. Or else you’ll end up paying more in the long run!
Kris Bickell started www.Debt-Tips.com to share the lessons he learned about getting out of debt. You’ll learn tips for choosing the right debt relief program, fixing your past credit problems, and making good financial decisions.