A few weeks ago, I got a promotion in the mail that said “Conquer Your Debt…Pay Down Your Credit Card Balance and Watch It Disappear.” I’m sure you’ve seen something similar in your mailbox- a balance transfer that promises to get you out of debt. And maybe you’ve wondered if it’s your ticket out.
To help you answer that question for yourself, I want to share my own experience and thoughts about using balance transfers because I’ve done them, and learned a lot about how they work, when they don’t and I want to want to help you make an informed decision.
Several years ago, I completed a balance transfer for my credit card debt. At the time, I had charged my credit card up close to the max and felt burdened by the debt. I wanted to get out of debt so I looked into one of the balance transfers I’d received in the mail. I chose to go with a balance transfer with a company I had a relationship with. It was not just a flier in the mail that caught my eye. For me, using the balance transfer was a way to get out of debt but I also knew that I had to ask myself some critical questions before I said “yes.”
Here’s what I learned/Here’s what I considered before I said yes…
Know Yourself
It may sound crazy but this is the first thing I had to consider.I had to ask myself “Am I ready to stop incurring debt?” You should too because it doesn’t make sense to pay off debt if you’re just going to keep incurring it by adding debt on a different card or in other areas of your life. To answer that, you need to decide if you’ve identified the root of your spending issues. If you haven’t, in my opinion, transferring your balance will not solve your debt issue so a balance transfer doesn’t make sense for you.
Know the Fine print
If you decide that a balance transfer is for you, get to know the fine print. Some cards will charge you a certain percentage to transfer your balance that is usually a percentage of the balance you’re transferring. Meanwhile, some balance transfers have no associated fees. You will also want to know how many months you have 0% interest. Some offers might be anywhere from 6-18 months. Lastly, be sure you know the interest rate on the card after the special promotion. After reading the fine print you might decide that you’ll be adding too much in fees to your debt or you might realize that you won’t be able to realistically pay off the debt in the timeframe they’ve given you.
Know Your Plan
Let’s say you transfer $5,000 of credit card debt to a 0% balance transfer and the card has no associated fees and you have 12 months to pay off the balance. That means you’ll need to pay $417 a month to pay off the balance off. The perk of a balance transfer is that your payments are applied directly towards your principal instead of your payments being split between your principal and interest. Creating a plan for how much you want to pay towards your debt each month will create accountability to paying the card off because you’ll know exactly how much you’ll need to set aside to knock out your credit card balance.
All in all, I think balance transfers can and do work if you truly have control of your spending, understand the fine print, and have a plan to control your day to day spending so you can maximize your ability to pay off your debt.
Got questions? Wondering how you can leverage a balance transfer in your debt pay off strategy or know you need help with getting your finances organized so you know where you stand financially. Leave me a comment or shoot me an email at keina@wealthovernow.com and let me know what comes up for you.
XOXO,
Keina
