Why Erin Lowry Says Budget Transfers Can Help You Pay Your Debt
- Balances not paid off by the end of the promotional period are subject to ongoing interest rates.
- Paying balance transfer fees might make sense if the cost is less than what you would pay in interest charges paying off your current card.
- Never miss a payment, or you could void the offer's introductory interest rate.
Avoid traps and create a plan to pay off your debt through 0% APR offers.
Banks love when customers sign up for balance transfer credit cards. While balance transfer offers seem helpful, banks make more money when customers fail to pay off the transferred debt within the allotted time. The hope is that customers continue to rack up debt at high interest rates.
However, according to financial expert Erin Lowry, following specific guidelines and having a plan will help you aggressively pay off debt through introductory 0% APR balance transfer offers.
What is a balance transfer?
A balance transfer moves the balance from a credit card or other eligible account to another credit card. Generally, balance transfer credit cards offer introductory 0% APR for extended periods, up to 12 months or longer. The idea is that consumers can save money on interest charges by transferring over debt with high interest rates to a card offering 0% APR.
If you don't pay off the transferred balance within the offer period, the interest rate jumps from the promotional rate to the ongoing rate, which could be a significant increase. In some cases, the card issuer may charge you the ongoing interest rate on the entire transferred balance.
When balance transfers are good to use
Balance transfers are a good option if you're carrying credit card debt from cards with high interest rates. It's tough to pay down debt when you're continuously strapped with expensive interest charges.
You may find competitive balance transfer offers by shopping around outside of your current bank or card issuers. Typically a bank doesn't allow you to transfer balances from one card to another within its own credit card ecosystem. You must be a new customer with an issuer to qualify for most balance transfer offers.
Balance transfers are a good option according to Lowry if "you don't struggle with compulsive purchases." If getting a new card will tempt you to spend beyond your means, it's not worth the risk. You could end up racking up new purchases and extending your card debt further.
Does paying a balance transfer fee make sense?
Credit card companies typically charge an upfront fee for transferring a balance to your new credit card. Balance transfer fees vary depending on the card issuer or card, but generally fall around 3% to 5% of the transferred balance.
So, is it worth getting 0% APR if you have to pay a fee? It all depends. You might save money long term by transferring your balance if the money saved on interest charges outweighs the cost of the fee.
Tips for using balance transfers to pay off debt
If you can stick to paying off your card balance within the promotional period, you'll take advantage of major savings with no interest charges. Use the tips below to stay the course and avoid high interest charges and penalties.
Keep up on your payments
You may qualify for a balance transfer card with a 12, 15, or 24-month introductory APR offer. Don't get caught in the trap of thinking you have plenty of time to make payments. Instead, make a plan and stick to it, making on-time payments each month. Some card issuers will nullify the promo rate if you miss a payment.
Don't use your card for purchases
Avoid using your balance transfer card for new purchases. It defeats the purpose of getting the card in the first place -- to pay off existing debt. Lowry says, "Don't carry it in your wallet. Don't link it to your Netflix account. Don't spend a penny on this card!" Use it for the promotional balance transfer offer and nothing more.
Check the fine print
Always read your card's terms and conditions to see if there are any actions that might nullify the promotional rate or cause you to incur penalties.
If you have existing credit card debt, taking advantage of 0% APR could be a smart money move. Compare balance transfer offer lengths and fees to find one that fits your needs. Ensure you can pay off the balance within the promotional period to avoid additional interest charges.
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