If you’d been attempting to pay off your debt and have noticed a few accounts that have high interest rates, you may be considering a balance transfer. There have been times when a balance transfer really helped us out! 

On the flip side, I’ve heard some major horror stories about them, so I made sure to really dive into the details before choosing one. 

By the end of this post, you’ll be aware of the pros and cons relating to balance transfers, when you should use one, what to look for in the fine print, and even have a few resources to find the best one for your situation.

Bad News First

The major danger point when doing a balance transfer, even more than the risk of fees, is the psychological effect it can have.

Moving your high interest credit card debt to a 0% promotional deal can make you feel like you accomplished something when all you’ve really done is moved the debt to a new location.

If you complete the balance transfer, see that your old card(s) are at a 0 balance, and then quickly dust your hands off and move on with your life, you are in for a rude awakening.

The debt is not gone, it’s just moved. I can appreciate that you feel like a weight has been lifted because you’re no longer accruing daily interest, but I’ve got to be the Debbie Downer here.

You didn’t really do anything. You still owe the money and now there are several other factors to navigate. It’s imperative that you’re aware of the pros and cons below.

Credit Card Companies are Smarter than You

Managing consumer debt (ie credit cards and personal loans) is a billion dollar business. Think about how they make money. Do you really believe we are going to win out big against these massive organizations that are marketed and lawyered up so well? 

Consider all the research, consumer behavior information, and marketing experts they use daily. Credit card companies know exactly what an attractive offer looks like to consumers and how to put language into the user agreement to ensure they make some profit. 

Notice the name right off the bat. It’s called a “promotional offer” because it’s a short term, highly persuasive marketing tool, used specifically to attract new customers. Think about it, there are SO many ways to potentially trip up this whole thing and accidentally get charged more fees.

Credit card companies are genius in making us think they are here to help.

Things That Can Trip You Up

The Fee – There are only a few balance transfer cards with no fee. They are typically reserved for those with excellent credit. Most cards charge anywhere from 3-5% of the balance you’re transferring immediately. So, if you’re transferring $2,000, your balance on your new card is actually going to be $2,060.  

Also note that this transfer fee is charged on EACH balance transferred. So, when consolidating a $2,000 balance from one card and a $3,000 balance from another card, you’re going to get hit with a transfer fee on both. Your new card will have a balance of $5,150, assuming a 3% fee. Which brings me to the next tripwire…

The Credit Limit – If you’re not careful, the value you transfer plus the 3% fee could put you over the credit limit on your new 0% card. The bigger the transfer, the bigger the fee and the more risk you’re at for bumping into that limit. 

Always double check what the credit limit is on the new card before initiating the transfer. Do all the math to make sure you’ll still be at least a few hundred dollars under the limit. Be 100% sure you’ll be below the credit limit on anything you transfer, including fees in your calculation. 

As another example, If I have a card that has a credit limit of $5,000 and I want to transfer $3,500 on a 0% promotion with a 3% fee, that would be okay. Because $,3500 x 3% = $105, which brings my total balance to $3,605 and that is less than the value of the credit limit. 

Consolidating a $2,000 and a $3,000 balance onto a card with a $5,000 credit limit would NOT be okay, because the new total with fees will be $5,150, which is over the credit limit. Oh, and there are definitely penalties (fees) you’d face for going over the limit. So, don’t do that.

The Promo End Date – Make sure that the amount you want to transfer, plus fees is really going to be paid off within the 0% promotional period. Most balance transfers are good anywhere from 6-18 months. Ensure you know the exact date the low interest rate expires and plan things out so that you will, without a doubt, pay it off before that date.

The Minimum – In order to hold up your end of the bargain, you’re required to make at least the minimum payment on or before the due date throughout the entire promotional period. It’s best to have no other charges on the card except the amount you transferred plus the balance transfer fee. 

The way your minimum payment is applied is completely up to the credit card company. If your card has charges on it in addition to the balance transfer, getting the payment value applied to your promotional balance versus the purchase balance could be tricky. Plus, you run the risk of accumulating interest on any and all balances involved here. It’s better not to complicate things further.

The Payment – In the blink of an eye, missing a payment will destroy any savings you thought you had by finding this deal in the first place. If there are any hiccups with your payment, the balance transferred will start accruing interest immediately. There’s not much else to say here except to never miss a payment and always pay at least the minimum.

The Due Date – Any sort of financial boo boo, including being late can completely negate the “deal” you had. No matter what, make sure you keep up with how much the minimum payment is and which date it’s due. 

This can all be wrecked by missing that first billing statement, so be diligent about getting that information a few days after the transfer goes through. Figure out the amount you should pay each month in order to pay it off by the promo end date, and set up automatic payments on or before the due date until the balance becomes 0.

Keep Rollin’ – Balance transfer opportunities should only be used if you’re being strategic about paying them off, not because you feel lucky. Rolling the balance to a new 0% card each time the promo period is over is a pretty intense and complicated game of risk!

Don’t play the roll over game because each time a transfer is completed, you’re accumulating another 3-5% fee and leveraging risk that you’ll be able to meet all of the requirements above without any hiccups.

The Old Card – If you overspent, transferred the balance, and then racked up other purchases on the old card again. I’ve been there. 

This yo-yo love affair with overspending and relying on credit reoccurs because there are some deep-seeded financial ideas and behaviors (that you don’t even know you have) that are unresolved. 

Something is going on internally with your behavior around money, and until you address that, you’re going to continue to struggle. I’m still discovering internal “money thoughts” that aren’t my own, and if I dig deep enough I’m able to identify that they came from money behaviors I was exposed to as a child.

There’s A Lot To Juggle

Funny how these all flow into each other, right? It’s like a can of worms! Behavior, the spending cycle, due dates, interest rates, minimum payments…oh my! It’s like an awful financial rendition of the Lions, Tigers, and Bears song from The Wizard of Oz. 

This can of worms gets crazier if you’re toying with a large value of debt, several transfers, or even an inconsistent income level, which is why it’s best to steer clear from playing the credit game completely if at all possible. 

I highly suggest paying off all consumer credit and breaking the cycle ASAP. 

How to be Successful with A Balance Transfer Credit Card

There are lots of cards with lots of options out there. I really love www.magnifymoney.com and similar sites like finder.com and nerdwallet.com. They are very helpful when comparing details. 

Choose Accordingly

Take the time to do the math and decide if you need a 6 month, 12 month, or 18 month promo period and whether a 3%, 4% or 5% fee will work for you. Consider that you need great credit to get approved for some of these options. Just because you apply doesn’t mean you’ll be approved. 

Will it Truly Save you Money?

Before completing a transfer, estimate the value of interest you’re currently set up to pay over the same time period. If you’re looking at a 12 month 0% card, is your currently monthly interest charge x 12 (months) larger than the 3% transfer fee?

What if your payment equalled the total value divided by 12 each month on your old credit card? Can you handle that value of payment? If, and only if the answer is yes to both of these questions, I would say a balance transfer may be beneficial to you. There are a few more things to think about though.

Ignore Rewards Programs

When looking at balance transfer options, your sole focus is to pay off the debt and no longer carry a balance once the promo period is over. So don’t even consider the rewards connected to the cards. 

Don’t plan on using the card for any additional purchases so rewards won’t matter anyway. Focus on the length of the 0% rate, the payment conditions, and the balance transfer fee. 

Any other perks or enticing tactics they advertise are examples of that excellent research and marketing we talked about before and should be ignored.

Be Aware of Potentially Negative Side Effects

Realize ahead of time your credit score may drop when you make this transfer. Two things (at least) are happening: You’re opening new credit and likely maxing out the new credit line, both of which make you look risky. 

If you’re focused on paying off debt, don’t worry too much about your score, just don’t be surprised if this happens. It will rise again as your debt value decreases over the next 6-18 months since you’ll be paying it off.

Consider All your Options

Consolidating isn’t always best. Really evaluate if adding a couple of your credit cards together is actually a good idea. If you couldn’t pay them off separately, can you actually pay off the consolidated value within the promo period?  If you’re going to make this move, implement automatic payments and a budget to ensure your success. 

Understand you can’t transfer a balance between the same issuer. If you have a balance on a Discover card and you see a promo for another Discover card at 0%, there’s a chance you could get approved but not be able to move the balance over. Find out the terms ahead of time and/or just go with a different bank issuer to avoid this problem altogether. 

Read the Fine Print

Whenever you transfer a balance, you want to take careful consideration of the terms. Realize that you have to have the total balance (the transfer amount plus the fee) paid off within that time period. Call your credit card company after the transfer posts and find out the exact date that the promotional period expires. 

I suggest putting calendar reminders on whichever app you use and setting up automatic payments to that card. Ensure that the last payment posts 3-5 business days prior to the promotional end date. 

Their “Gotcha” Game is Strong

Whether you made the transfer and forgot about it, didn’t realize the first payment would come up so quickly, or never saw the statement come in the mail, they gotcha. 

When you make a transfer and take advantage of this “great” offer, you’re agreeing to a game of chess. While there are moves you can make to win (and if you do, it’s wonderful), any hiccup can cost you big. 

Pay attention to detail and be crazy-vigilant about every puzzle piece above. 

When a Balance Transfer can Benefit You

If you tend to be a detail oriented, pretty “on top of it” gal, and you’re going to commit to seeing this through, a balance transfer can really save you quite a bit of cash. 0% transfer deals are great if the 3-5% fee is less than the interest you would have paid over the course of the year. 

A balance transfer card can be great for a one time big expense and to get you out of the hole once and for all. In fact, if you work the Mama’s Abundant Money Series starting with Step 1 and establish an emergency fund, you’ll probably never have to deal with this whole chess game again. 

Quit Using a Fee’d Card

If you’ve had cards that require a yearly fee in exchange for perks like travel rewards and used a 0% transfer to help manage the balance you were carrying, that could be a great long term decision. 

Yearly fee cards are a thing of the past since most of us can’t stand paying for privilege anymore. There are so many options now for cards with perks and without a yearly fee, it’s time you looked into the choices available. 

Remember to close the old, yearly fee card to prevent additional spending temptation and so you’ll never get charged that yearly fee again. 

Quit Paying High Interest

It’s so common to have credit card debt these days. Even though they aren’t talking about it, it’s likely that 3/4 of your friends are carrying credit card debt. 

Most Americans are not only carrying the debt, but also racking up crazy-high interest charges each month. If completing a balance transfer breaks that cycle for you, a balance transfer may be a good plan. 

Do the Math

You can’t argue with numbers. If you do the math and this saves you money, this may be really enticing for you. Tons of interest adding on top of your balance each month versus a one-time fee? Seems pretty clear to me, as long as you can also master the behavior that got you here in the first place.

If it would Just Quit Growing

If the constant activity of interest building on top of your balance is what’s preventing you from making progress, a balance transfer might work well. 

With a one-time (in the promo period) fee of 3-5% and a constant balance throughout the promotional period, it’s highly possible that you can make much more progress than if you’re getting hit with 22% APR each billing cycle. 

Again, you do the math and evaluate how much you can pay, but this might be a better choice. 

Reduce Stress

When you open the mail, are your eyes instantly searching to see how much interest they charged you this month? If so, this whole carrying debt / interest accumulating thing is stressing you out! 

You may be so used to it that you don’t even notice that ball of nerves. Picture opening the envelope and knowing what to expect. How would you feel? 

If that imagination exercise feels better to you, maybe you should go for it. 

If Buying Time Allows you to Pay it Off

I’m not a gambler – it gives me too much anxiety. But I was okay with carrying debt for years…until I realized this: 

Carrying debt and juggling balances IS gambling. 

Like I said above, you’re playing a game of chess or “gotcha” with your money. It’s just so normalized in our society, we don’t even notice. 

If paying 3% now allows you to actually pay off the card inside of the 12 or 18 month promo period, and since you just read this whole article so you’re ultra-informed now 😉 I’d say it’s a viable option.

So, Should you Do a Balance Transfer?

Having high interest or high balances of credit card debt is no joke, but if you’re aware of all of the above potential issues, and can navigate them well, balance transfers may really be able to help. 

My best advice? Really consider each piece above, be ultra diligent about the details, and stick to your plan. I believe in you!