I’ve been there. Over $20,000 in consumer debt with interest rates higher than Cheech and Chong combined.
I remember seeing the offers pouring in to lower my interest rates. This one stuck out:
“0% interest rates on balance transfers for up to 15 months!”
It was a Chase Slate card. 15 months was the longest zero interest offer I could find for a balance transfer at the time. I calculated how much we needed to pay each month to pay it off in 15 months. We applied. We were approved.
It worked for us. We went from paying interest rates of 12%, 15% and even 17% to paying no interest whatsoever. But what would have happened if we would have went over the 15 month mark? Around 23% interest would have happened.
We had to ask ourselves if we were certain we could pay off the account in time, no matter how many unexpected costs popped up, but that’s not all we had to ask. Here are four questions to ask if you’re considering a balance transfer. Two to ask the company and two to ask yourself…
1. When Does the Rate Expire?
Obviously first you’ll want to know what the rate is; then you’ll need to know when it expires. You should be able to find 0% (like the Chase Slate card), but once the introductory rate expires, the interest will likely skyrocket, so make sure you’re able to pay it off in time.
All you need to do is divide your total amount of debt by the number of months you have to pay it off before your interest rate goes back up. If it’s doable and possible even with unexpected expenses then you’re in good shape so far. You’ll have to crunch some numbers here, but even if you don’t pay it off during the intro period, you still may save money on interest. That depends on what the interest will jump to. We’ll talk about that next…
2. What Are the Terms?
With many 0% introductory offers for balances transfers, they will do anything they can to get that interest rate back up into the double digits. Typically if you make one late payment, your interest rate will go back to the normal rate and stay there.
You should also consider that if you make new purchases on that card, you’ll probably be paying the regular rate for the new balance. Most 0% intro offers are only for the balance you transfer and not for any new debt. So before you start thinking you can rack up your balance without the interest, read the terms.
3. How Will the Balance Transfer Affect Your Credit Score?
One balance transfer will have little to no effect on your credit score. Ten balance transfers will have a significant effect. If you plan to transfer your balance multiple times, make sure you know the potential impact it can have on your credit.
Credit agencies and credit card companies can tell when you’re just transferring your balance to avoid paying interest. You would think it would make you look smart (and I personally think it is pretty smooth), but they would rather see that amount being paid off rather than sticking around for several years.
4. Are You Responsible Enough to Do It?
This is the ultimate question. If you’re not responsible enough to pay off the card in time after you transfer your balance – don’t do it. But this is difficult, because you have to be honest with yourself. Look at your past and look at who you are now. If you have a history of being undisciplined with paying extra on loans, who’s to say you aren’t going to be undisciplined with this one? If you have any questions about your ability to pay it off in time, you may want to consider creating a plan in your current situation without transferring any balances. You can still negotiate with credit card companies to lower your interest if you decide not to transfer your balance.
Balance transfers can be great if you’re disciplined and responsible enough to take advantage of them, as opposed to being taken advantage of by them. You’re the only one who can make that call, but if you’re dishonest about your ability, you’re only hurting yourself and potentially your family.
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