Suze Orman Recommends This Simple Approach to Making Debt Payoff Easier
Should you follow her advice?
Repaying credit card debt can be a major challenge. That's true, in part, because credit cards tend to have very high interest rates. Once you acquire a balance on your credit cards and have to start paying interest on it, a good portion of each payment you make will go toward those interest costs rather than toward reducing your principal balance. That makes it expensive and time consuming to become debt-free.
To reduce the costs of credit card debt and make payoff easier, personal finance guru Suze Orman recommends exploring whether you can qualify for a balance transfer offer. Is she right? Read on to find out.
Here's how Suze Orman says a balance transfer can make debt payoff easier
As Orman explains, a balance transfer deal is offered by credit card issuers to entice you to move the existing balance of your credit card debt to their card. These deals usually allow you to pay a small balance transfer fee to move the balance from one or more creditors. The transferred balance is then subject to a 0% promotional interest rate for a limited period of time.
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A 0% balance transfer card allows you to pay no interest at all for months, once you've paid the small up-front balance transfer fee (which is usually around 3%). Often, you'll be given a full year (or longer) to work on paying down your debt at the 0% rate.
As Orman says, this makes it much easier to tackle your debt than if you're being charged 16% or more in credit card interest. When you owe no interest, every single dollar that you pay on the card goes towards reducing the balance due. Your balance will go down much faster, and your debt will both cost less and be easier to repay. As Orman explains, the benefits of this can more than justify paying the small fee because of the substantial amount you can save on credit card interest.
Of course, Orman warns that you need to read the fine print because there could be pitfalls to watch out for. Specifically, if you make late payments, you could lose your promotional rate and get stuck right back where you started with a high-rate card.
And she also cautions that your rate could rise sharply if you haven't paid off your entire balance before the 0% rate ends. She suggests this could be "good motivation" to get your debt paid off on schedule.
Should you listen to Suze Orman and take a balance transfer?
Orman's advice here is great. There's no question that balance transfers can save you money on interest and allow more of your payment to go towards principal -- which in turn can help you become debt-free ASAP.
If you can qualify for a balance transfer card, there's no harm in following her suggestion, and you could end up a lot better off. However, there are a few caveats to be aware of.
You can't confuse transferring a balance with making actual progress on debt payoff. Moving the balance over is a tool to help you make repayment easier, but you still need to be committed to making the necessary monthly payments to bring your balance down to $0 -- ideally before your 0% rate ends.
You also need to be confident that you have control of your spending. If you transfer a balance but are still living beyond your means, there's a risk you could end up charging a lot of stuff you can't afford on the cards with the credit you freed up. This could mean you dig a much bigger hole for yourself because you have the balance transfer card to pay plus you now have a new credit card balance to deal with.
But if you're living on a budget, and you can afford to make the necessary payments to pay down your transferred balance, then Orman's suggestion is a great one, and you should start looking for the best balance transfer cards today.
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