Balance Transfer Credit Card Decisions
It’s that time of year again.
Time to make some decisions. Time to make a change.
Hike up those big girl panties and do what needs to be done.
Is it a New Year’s resolution? Not really.
Year end performance evaluation and time to ask for a raise? Nope, not exactly.
Time to reign in the calories to work off those extra helpings of figgy pudding and fruitcake? Not so much.
What I’m talking about is wrangling in your finances, for the umpteenth time.
Getting a grip on your outstanding debt, because like it or not, the time has come…
The ticker is no longer counting down … the timer has landed at zero.
There is no more sand falling through the hourglass.
Six months have ended (or 12 or 18), and it’s time to take action.
It’s time for the Balance Transfer Shuffle.
What’s the Balance Transfer Shuffle, you say?
Oh you know the drill — a credit card company sends you this super-enticing offer.
“Sign up today and enjoy a 0% apr on all balance transfers for the next 12 months!!!!”
Your eyes glaze over as you contemplate everything you can accomplish by refinancing your existing debt. It could surely provide a much needed buffer to your okay-but-not-excessive spending style.
Maybe you can offset a few upcoming purchases, like that new set of tires your car needs, or the renewal of your lawn care program.
Charge it all now, and then you have an entire year to pay it off.
Plus you can use your upcoming tax refund to just wipe it all out.
Surely you’ll have it paid off waaay before the promotion ends.
And that’s how they get you.
One month goes by.
Then another, followed by the next.
And then you basically forget about it entirely.
It falls into the category of “things to worry about later, but not important enough for right now.”
That’s where we all run into trouble.
About halfway through, you might glance at the billing statement and go “Huh. I guess I need to start paying attention to this promotional balance.”
And you throw an extra $50 or $100 onto the next payment. (Yeah, like that’s gonna make a dent in it…)
A few months before the end date, the credit card company may send you a reminder notice. “Your promotional rate will be expiring soon!”
You know there’s a big whig sitting at his or her big fancy desk somewhere, crunching all of the numbers on credit card holders who have absolutely no chance to pay off their promotional balance in time.
Sitting up on the 12th floor of some high rise, looking out their plate glass window with a view of the city skyline, laughing at our poor planning and naivete.
Did we really think we’d have the promotional balance paid off within the allotted time frame?
And then, one month before the deadline date, when you get slapped in the face with that impending deferred interest, it hits you.
And you realize how truly brilliant you are.
You can beat the system.
In fact, the system may as well bow down to your majesty right at this very moment.
You’ve figured out how to pay off that promotional balance, and get away scot-free.
It’s so simple, you don’t understand how you didn’t think of it before.
You can pay off what you owe, most likely skip a month’s payment, and then have room to breathe. (For the time being.)
Yep, you know what I’m talking about.
You, my friend, have just started dancing with the devil in the pale moonlight.
We’re talking about doing the Balance Transfer Shuffle.
You start searching for another credit card offer with another 0% promotional rate.
Then you transfer your existing promotional balance to that new card, and the timer begins anew.
Meanwhile, you now have one credit card with a zero balance, that’s just begging to be used. And a brand new credit card that is maxed out — but don’t worry, you have another 6 months (or 12 or 18) to think about paying that one off.
And so the vicious cycle continues.
If you know what I’m talking about, then understand that you are not the only one.
But really, this is a suggestion that I’ve read online time and time again:
If you need to pay off or consolidate your credit card debt, find a 0% apr balance transfer promo, easy-peasy.
But you rarely find a full and detailed tutorial on how the refinance process truly works, to close that loop in the end — and finally end that nasty, soul-sucking cycle.
So now that I’ve fallen into the above (self-made) trap on multiple occasions, I’m going to share with you what I’ve learned, and caution you to take heed of these warnings.
Before signing up for a promotional balance transfer credit card, do your homework:
- Figure out your payment goal
Calculate how much you’ll need to pay each month in order to have the promotional balance paid in full by the due date. So take the total refinanced amount, including any transfer fees, and divide equally by the number of months in the promotional period. This will tell you how much money you need to pay each month in order to owe nothing at the end of the promotional period.
Example: Total balance of $2,700 divided by a promotional period of 18 months would be: $2,700 ÷ 18 = $150 that you’d need to pay each month in order to have that promotional balance paid off in time.
- Read the fine print
Read the balance transfer agreement on how any additional purchases or transfers may affect the promotional balance on the credit card. If there is any possibility that you might use that credit card for other purchases, you need to know how your monthly payment will be applied. For instance, if you make a monthly payment of $200, will that entire amount go toward your initial promotional balance, or will part of it go toward the purchase that you just made. That could severely impact your payoff plan.
Not only is it a bad idea to add purchases onto a card where you are holding a promotional balance, but it also can throw a wrench in your payoff efforts.
- Watch out for hidden fees
When you accept a promotional balance transfer offer, there is usually a balance transfer fee. The balance transfer fee is typically 3% – 5% of the amount you are transferring — and that fee amount is subtracted from your available credit limit. So you will be paying for the ability to make the transfer, and essentially taking on more credit by doing so. Which is another good reason to pay it all off in time.
So in conclusion, the best way to take advantage of credit card promotional balance transfers — use it once, plan, and then be done with it.
And above all:
- Do your homework
- Calculate what your equal monthly payment would be
- Know how other purchases will affect the balance payoff
- Figure out any hidden fees ahead of time
- Mark that end date on your calendar.
Do you have experience with the balance transfer shuffle?
Have you danced with the devil, and made it out unscathed?
What other smart ways have you found to refinance debt?
Hit me up in the comments — I’d love to hear your story!
Robin is a full-time business professional who has worked in the financial services industry for over 20 years. She is also a personal finance blogger who shares her first hand experience with the struggles of money and debt. On Mastering the Side Jam, she focuses on ways to maximize efficiencies to make & save money, pay off debt, and live your best life.
She has been been featured on The Money Mix, Rockstar Finance, The Financial Diet and Women’s Money Talk, and has been quoted in various online publications.