Why Suze Orman Is Right and Dave Ramsey Is Wrong About Balance Transfers

Listening to Ramsey's advice could cost you.

Balance transfers are a popular debt repayment tool. When you use a balance transfer to help you pay off debt, you apply for a new credit card with a special balance transfer offer or you take advantage of an offer on a current card.

The balance transfer offer generally allows you to pay 0% interest for a period of time when you transfer a balance from an old credit card to the new one. You will often be charged a small fee for the transfer, such as 3% of the amount. And once the promotional period ends, you'll have to pay the card's standard interest rate on any remaining balance. Usually, the 0% rate is in effect for around 12 to 15 months.

It's easy to see why balance transfers could be a good tool for debt payoff because credit cards tend to have high interest rates. If you can take a card balance you're paying 17% or more on and change to paying 0% interest on that debt, repayment will become cheaper and easier -- even with the upfront balance transfer fee.

But is it a good idea to use this tool? There's disagreement among finance experts, with two well-known personalities in conflict about whether a balance transfer is a good way to tackle debt.

Here's what Suze Orman and Dave Ramsey think about balance transfers

Dave Ramsey is well known for advocating that consumers take aggressive measures to repay loans, and for suggesting that people should aim to live debt free. But while the finance expert wants people to do everything they can to repay creditors ASAP, he's not in favor of balance transfers.

The Ramsey Solutions blog clearly states that "a credit card balance transfer is just another way to keep you stuck in the cycle of debt," and it unequivocally states that "It's a bad idea," to take out a balance transfer. As the blog explains, transferring debt using a balance transfer is a "temporary solution" that "creates a false sense of security," so it's best to avoid this approach.

Ramsey's blog also goes on to explain that card companies make money because of balance transfer fees, penalty fees, and interest charged on balances that remain after debt is paid down.

Suze Orman, on the other hand, recommends considering a balance transfer to help make the cost of your debt lower. "Even if you have to pay a fee to initiate a balance transfer -- it can be 3% or so of the amount transferred -- it can still be worth it," Orman's blog states. "Having a year, or more, where your balance won't be charged any interest is a lot better than trying to tackle your debt while it is being hit with a 16% or higher annual interest charge."

Here's why Orman is right and Ramsey is wrong

When it comes to balance transfers, Orman is definitely right and Ramsey is wrong. And it just takes simple math to understand why.

Balance transfers can be a tool that helps you make debt payoff much less expensive. If you are serious about repaying your debt and not charging more on your current cards, there's no reason not to take advantage of the opportunity to slash your interest rate.

Of course, you'll want to have a plan to make sure you can pay off most or all of your outstanding balance before the 0% rate expires. And you need to recognize that simply moving debt around isn't going to fix your problems unless you have a plan to repay the transferred balance.

But if you do these things, then you should seriously consider taking advantage of the opportunity a balance transfer provides to make debt payoff a lot cheaper.