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Should You Transfer Debt to a Low Interest Credit Card?

credit card debtWhen we were in the midst of paying off over $30,000 in credit card debt, one of the options we used was transferring high interest balances to lower interest credit cards. In fact, we sought out 0% balance transfer offers. While this strategy helped save hundreds of dollars in interest, you have to make sure that transferring your debt to lower interest credit cards is a smart move for your financial situation.

Check Your Credit Score

Even though we were swimming in debt, we always had high credit scores because we never missed payments. Because of our credit scores, we were eligible for all kinds of balance transfer options for new cards and for cards we already had. Believe it or not, we did have a few cards that did not have a balance, so those were the ones we chose to use. If you have good credit, offers will be plentiful, which is a big reason we got into so much debt in the first place.

If you don’t have stellar credit, you can make some changes and get a higher score relatively quickly. If you are so behind on payments that there is no way to catch up, credit counseling or debt consolidation might be your best option.

Look at the Fine Print

When choosing the best credit card for a balance transfers, always read the fine print. My husband and I both had identical looking balance transfer offers for a Bank of America card for 12 months at 0% interest. However, my offer carried a 3% transfer fee, and his was 4%. This information was in tiny writing at the bottom of the page, so don’t forget to read everything before you decide.

Fees and Promotional Periods

When doing a balance transfer, there will always be a fee, usually 3%-5% of the total balance transferred. We transferred about $15,000, so at 3% that would have cost $450, which would have still saved money because the interest rate was costing us almost $200/month. We searched a bit harder and found a card that gave us a 0% offer for 18 months with a 1% fee. I was actually glad to pay that $150 because it meant no more interest!

Along with a fee, there will be a promotional period. Whatever payoff timeline you choose, make sure you will be able to pay off the balance during that promo period. Otherwise, you’ll get hit with a huge interest charge. Of course, you could transfer the balance again, but there is never a guarantee that a good offer will be available in the future. I would not transfer more than I knew I could pay off. There are some great calculators at Bankrate that can help if you aren’t sure about the payment amounts or if it makes sense to transfer a balance.

Don’t Always Pay Your Credit Card First

While I strongly believe everyone should be responsible for the consumer debts you rack up, there are times when I would give up on making credit card payments. Many people get so hung up on paying the credit cards that they have to slack on paying secured assets. If you don’t pay your credit cards, your credit score will suffer, and you may get calls from collection agencies, but ultimately, that’s all that can happen.

If you stop your car payments, Mr. Repo Man will come knocking on your door. How will you get to work to earn a paycheck then? Even worse, I’ve seen people, family included, who have taken out a home equity loan or refinanced a mortgage to get money for paying credit cards. While interest rates might seem lower, if you end up not being able to make the mortgage payment, you’ll lose your house. Never put an unsecured debt, like credit card balances, on a secured asset, like your house.

While it might seem fun to get into debt, paying off credit cards is not fun at all. The best way to avoid the problem is to never buy things on credit that you know you don’t have cash to cover. If you are like me and didn’t follow that rule, a balance transfer to a lower interest credit card can be a good option for paying off debt. After getting out of debt, you get to are able to use credit cards for fun things like rewards or cash back. ย Getting rid of credit card debt forever is a wonderful feeling, and I would use whatever steps are reasonable to achieve that.

Have you ever used a balance transfer to get out of debt? What’s the dumbest thing you’ve ever put on credit?

Don’t miss my guest post today at I Heart Budgets!ย 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

43 comments

  1. Great point about not paying your credit card first. Paying your mortgage and car payment should always be a priority for the reasons you listed. I can’t think of the dumbest thing I bought on my credit card, but I’m sure there’s a long list ๐Ÿ˜‰

  2. The only debt I would ever transfer to a low interest credit card is other credit card balances. I would never, ever transfer any other type of debt or loan over to a credit card, even if the rate was better. There are just too many opportunities to fall into big problems that way. If you are paying 24% on a credit card and can get it down to 0-5%, then yes it definitely makes sense to explore that option, but as you pointed out, you still have to read the fine print very closely and make sure you understand how long that rate is good for.

  3. I used a transfer once and I agree that it’s so vital to read the fine print to make sure you know what you’re getting yourself into. In terms of the dumbest thing I ever charged…I think that could be a post series for me. ๐Ÿ˜‰

  4. I’ve never transferred debt, but I’ve also never had credit card debt.

  5. Great post, Kim! We just did some transfers to get a 0% rate. It’ll work well for us, but only because we’re committed to accumulating no more debt, I think. They can be dangerous if you’re still spending frivolously. As for the dumbest thing we’ve ever put on a credit card, that list is WAY too long to write about here. ๐Ÿ™‚

    • We bought a vacuum on an installment loan once. Not really a credit card, but still pretty dumb. If you can’t afford to pay for a vacuum, maybe you just need to use a broom.

  6. I took a 0% cash advance to invest a couple of times, for a year with 3% fee it is lower than any unsecured loan. But you have to be sure you can get the money by the time the deal expires. Making a transfer is a wise move unless you only have a few months to go with your debt, and like you say, if you want to get rid of it, not keep it there a while longer.

    • Yes, holding debt forever and continuing to transfer it around is not a good plan if you ever want to have financial freedom.

  7. I think provided you look at all the ins and outs of the contract and you understand the fees and any lock in periods then it can be a good way to reduce your overall debt burden.

    • It helped us for sure, but we were in a good mindset about paying off debt. If you aren’t it might be better to leave the balance alone in case you don’t pay it off by the promo period.

  8. When Greg and I started dating, he had about $2000 worth of credit card debt. He was still using the card so his debt was growing monthly. We transferred the balance to a card with 0 percent interest and paid it off after that. At the time, there were also no balance transfer fees!

  9. I have done this and it’s really helpful, however too many people play the credit card game of always transferring their cards once the interest rate takes effect. They just get lazy and don’t aggressively make an attempt to pay it off. How do I know this? I was one of those people in my early days. ๐Ÿ™‚ But thankfully I didn’t take it too far and my credit score has always been great!

  10. This is one of those things that requires discipline! Transferring to a zero interest card may make sense, but only if you can pay it off during the promotional period.

    • Yes, I would say you have to be ready to get out of debt and not run the charges back up as well. Otherwise, what’s the point?

  11. “The Fine Print” is so important! Your example was perfect of why you have to check. I had a friend who missed where it said no interest for 6 months and ended up in a bind trying to transfer that balance again.

    • I hate trying to play the balance transfer game. It takes so much energy to keep up with rates and promo periods. I’m glad I’ll never have to do that again.

  12. When I was younger and using spending to make me feel better, I opened up a new credit card to transfer my other cards balance to since the new card had a 0% promotion. But then I kept spending on the old card anyways!

    Once I learned why I was spending and got it under control, I used balance transfers all of the time to save money. You have to do the math though to see how much the fee is (if any) and how much interest you would pay by not making the transfer. Sometimes it makes sense and other times it doesn’t. The key though is to not continue to spend on the old card!

    • Yes, point number one is always stop using the card you just transferred from. It does no good if you run the balance up again.

  13. Great post, Kim. Lots of great points for people to consider when repaying credit card debt. It is a lot of fun creating that debt, but once you wake up and realize you need to change, some people go full charge ahead without taking the time to create a thoughtful approach. I’m sure credit card companies make a lot of money off people who transfer but don’t pay off within that time period. And thank you for pointing out to your readers that mortgage payments and car payments should be prioritized over credit card debt if you are forced to choose and the perils of using secured debt to cover unsecured debt.

  14. I’m very glad that I have never had to deal with this situation. I’m not even sure what the balance transfer rate on my cards are.

  15. Interesting breakdown, clear points. Great post!

  16. Jennifer Willard

    Maybe it wasn’t a dumb thing to put on a credit card, but I rented a movie and forgot to return it. $1 inflated to $30 by the time I checked my statement and realized!

    • I’m always worried I will do something like that. I always put movies right over my spedometer so I won’t forget to return them.

  17. I once had got a “consolidation loan” that had an intro period of 90 days (considering the rates and terms, it was really just a credit card with no actual card). Of course, I then ran up the balance on the cards. Of $9k in credit card debt I had racked up, I’m down to $4k now and, fingers crossed, will have it paid off by the end of the year.

    • 90 days is a really tough period to pay something off. It seems like a long time, but 3 mos goes by really fast. Good luck with paying off the rest of the debt.

  18. I was just thinking about looking into this for the one card I have, and then here’s your post ๐Ÿ™‚ Thanks for the reminder about the fine print!

  19. No, I’ve never had to do a balance transfer of a credit card as I rarely if ever used them in the UK I just paid cash. It wasn’t until I moved to Canada that I started using credit cards more mainly for reward points. I think transferring the money is fine but like you said make sure you read all the fine print. The best point you make is to not put things on credit that you don’t have cash to cover.

  20. I’ve done that twice to a zero percent card and managed to pay the debt off before it starting getting hit with interest. I think it’s worth it, as long as you factor the transaction fee into it! The best plan is to never get into into credit card debt to start with!

  21. I transferred balances consistently while I was paying off my credit cards. I saved a lot of money, but I only did it because I knew I could pay off the card before the promo ended. It would have not worked if I would have let the promo lapse.

  22. Kim, I really enjoyed this post. Not only do you address the balance transfer option but I love how you explained the importance of credit card payments in comparison to payments for secured assets. Thanks for the incredible info!

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