Is Dave Ramsey Right About Balance Transfer Credit Cards?

Following Dave Ramsey's advice on balance transfer cards could cost you.

Balance transfer credit cards are a common tool used to help with debt repayment. Many people who have credit card debt use a balance transfer to reduce their interest costs. The process involves getting a new credit card offering a 0% interest rate on transferred balances and then moving debt from existing credit cards over to it.

Since credit cards tend to have very high interest rates, transferring the balance to a card charging 0% can significantly reduce financing charges and lower the cost to repay debt. And that's true even though balance transfer cards usually charge a small fee, such as 3%, to transfer the balance.

But while some financial experts advise using balance transfer cards to help with the process of debt payoff, others are not in favor. Specifically, finance guru Dave Ramsey has argued that balance transfer offers are not worth taking advantage of. Here's why.

This is what Dave Ramsey has to say about balance transfer cards

Ramsey has made his position about balance transfer credit cards very clear. He's said they are "absolutely not" worth it because "transferring debt from one credit card to another won’t fix the debt problem."

Instead, Ramsey says that balance transfers create a "false sense of security" by making you feel as if you're solving your debt problem when you're actually going to end up paying the bills for even longer.

And he warns that the introductory rate will be in effect for just a short time before you end up getting stuck dealing with a variable interest rate that could cost you a fortune.

Ramsey also cautions that card issuers are out to make money with balance transfer cards, and that you could get hit with initial transfer fees, penalty fees for missed payments, and a high post-promotional interest rate.

Is Ramsey right?

Ramsey is right about some aspects of balance transfer cards. You will end up facing higher interest rates if you don't pay off the debt before the initial 0% rate ends, and you will have to pay both an upfront fee and extra costs if you're late making payments.

But none of these are good reasons not to take a balance transfer offer.

The credit card you currently owe money on will likely also have a variable interest rate and is already charging you interest at a high rate. If you can lower that rate all the way down to 0% for a full year to 15 months, which is how long most promotional rates last, you'll definitely make debt payoff cheaper. And paying a small 3% to 5% fee for the ability to drop your rate to 0% is typically well worth it since that will cost you way less than interest would over the course of the year.

Ramsey's best argument against balance transfers is that they can make you feel like you're doing something about your debt when ultimately the only way to deal with your card balance effectively is to develop a plan to pay it off in full ASAP.

But if you are serious about becoming debt free and are making extra payments toward your loans while living on a budget and avoiding borrowing more, there is absolutely no reason not to take advantage of a card offer that gives you the chance for more of each payment to go to the principal balance so you can become debt free faster and for less.