Should You Do a Balance Transfer?

The first thing you should consider before deciding on whether or not to use a balance transfer is your “financial discipline”. This is really the most important determining factor regarding whether your use of a balance transfer will be successful or not. The reason being, most balance transfers and promotional offers have a great deal of associated “fine print” and require an upfront transfer of any from approximately 3- 6%. This transfer fee is essentially another word for “interest payment”. It can be marketed with different wording but that is essentially what it is.

Setting Realistic Expectations on When You Can Pay It Back

If you do not set realistic expectations on the payback of the balance and are not disciplined enough to finish paying before the end of the promotional period, the transfer is likely to cause more harm than good. The reason being is that many transfers have retroactive interest associated with them and when that promotional period runs out many consumers can fall into trouble. This isn’t a guarantee but the odds are not in your favor.

Balance transfers only move your debt from one place to another, meaning your basically robbing Peter to pay Paul. They can be a tremendous tool for saving money off interest payments and shortening your total repayment of any debt obligations, however they aren’t a cure all and they have their downsides.

The Cons of a Balance Transfer

Balance transfers have their pitfalls. Firstly, they are never completely interest free. You will typically have to pay a balance transfer fee of approximately 4%. This fee is essentially an upfront interest payment on the balance/amount you are transferring. You also need to be extremely weary of the terms for balance transfers! Offers sometimes have ambiguous terms and you definitely need to make sure you are reading the fine print. In some cases, if you do not fully pay off the entirety of the balance within the promotional period you can be subject to retroactive interest charges on the entire balance. If this occurs you are nullifying all associated benefits of the transfer and will actually end up paying more interest in the long run. This is by far the most important thing to watch out for. Example: There has been instances where consumers have left a menial $75 balance before the end of the promotion and were required to pay retroactive interest on the total amount of their $10,000 transfer.

The Pros of a Balance of Transfer

You can substantially lower the amount you are paying on credit card interest and therefore have more of your payments go towards the principal amount you owe. They are relatively easy to setup so long as you qualify. If you follow a plan and execute effectively and with discipline you can save a tremendous amount of money by leveraging a 0% interest promotional offer.