Would you ever use a Balance Transfer?

When it comes to credit card marketing, there are some things I just never pay attention to.  One is the APR, which is the comically high interest rate you pay on the part of your balance not paid in full by the due date.  I’ve seen rates from 10, 20 to even 30 percent on certain cards.  Those are scary numbers, but I’m not scared of them.  That’s because I make it a priority to always pay my credit card balance in full.  Getting into credit card debt is one of the toughest holes to dig out of because of the aforementioned crazy high interest rates.  Everyone should avoid by any means necessary.

Another thing I don’t worry about?  Late fees.  Some companies even market cards with certain benefits like “low late fees” or “you won’t pay your first late fee.”  These marketing ploys don’t work on people like me who pay off their credit card balance as early as possible.  Adding an extra $30 to your bill is not what smart people do.  Paying your credit card bill in full and on time is one of the best things you can do for your credit score.  If you make a big purchase that takes a decent amount of your credit limit, it may even be worth it to make an early payment so your credit utilization ratio stays at a good level.

Another thing I don’t pay attention to is balance transfers.  They allow you to move your credit card debt from one card to another, with the idea being you’re moving debt from a high interest card to one with a low interest, or temporarily no interest card.  This allows you to save some money on interest payments.  The catch is that you must pay off the debt in the specified amount of time, usually around a year or so.  If it takes longer, then you get hit with a REALLY high interest rate.  Sneaky credit card companies.  I never really had a need for this because I don’t have credit card debt.  But on a fateful morning about one year ago, I did a balance transfer.  And here’s why.

I was calling to activate a new credit card with a sweet and easy to get sign up bonus.  My favorite kind.  The credit card rep was going through his usual money making pitches: credit monitoring service?  NO.  PIN for ATM access?  NO.  Balnace transfer to pay off credit card debt or student loans?  NO….wait what?  Student loans?  I love paying those off early.  I asked for more information and he informed me that they would deposit a certain amount of money into my bank account which would go on my credit card.  I could then use that money in my bank account to pay my student loan bill (or whatever I wanted technically but I figured paying off a student loan would be more responsible).

The terms of the balance transfer were I would pay no interest for a year (I did pay a 3% fee for the transfer of money so it’s essentially a loan with a 3% interest rate).  So I had a year to pay back this amount or face hefty interest rates.  Luckily, I had a student loan which I could easily pay off in a year that had an interest rate of 8.5%.  So the bank was giving me a loan with a 3% rate to pay off a loan with an 8.5% rate.  And I had a year to pay them back.  I pulled the trigger and happily got rid of that student loan and paid the bank back in 6 months.  I saved a couple of hundred dollars in interest payments in the process.

This is probably the only scenario I could imagine myself doing a balance transfer.  Since the interest rates of the rest of my student loans are pretty manageable, I don’t see myself doing this again.  Also, life can intervene in your ability to pay off a large balance in a year, so there is a little bit of risk involved.  With a freshly minted 1 year old boy, that’s a risk I would rather not take.  I really don’t pay attention to balance transfer offers anymore but for people with high interest debt with relatively low balances, they might be an option.

Leave a comment below about your experience with balance transfers or why you would never go near one.


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