Trying to avoid the scourge of credit card interest is a good idea. Given that most plastic carries a double-digit APR, you’re saving yourself big bucks by figuring out ways to dodge it.
If you’ve been relying on balance transfers to steer clear of interest payments, you might be wondering if there’s anything wrong with transferring the same balance from card to card. Before applying for another card that’s offering a 0% promotion, take a look at the details below – the Nerds will help you decide if it’s a good idea or not.
Transferring a credit card balance can be a smart move
Just to be clear, the Nerds aren’t categorically opposed to transferring a credit card balance. In fact, there are a lot of good reasons to consider moving your high-interest debt onto a 0% card.
The first and most obvious reason is savings on interest. As of July 2014, the average APR on a credit card is hovering around 15%. If you’re carrying debt on a card that’s charging this rate, you could be shelling out hundreds of dollars per year on interest.
But if you transfer that balance to a card that offers an introductory 0% period, you’re skirting those costs for the length of the interest-free period. Ideally, you’d reinvest the savings into your debt payoff and eliminate your balance before the 0% reprieve comes to an end.
Another good reason to transfer your balance(s) to a 0% card is to simplify your financial life. If you’re carrying debt on multiple cards and can consolidate them all into one monthly payment, you won’t have to worry about several billing due dates. If you struggle with organization, this can help you avoid missing a payment.
There are pitfalls to transferring the same balance again and again
Transferring a credit card balance to a 0% card is certainly not a bad idea if you handle it carefully. But certain problems can arise if you keep transferring the same balance to a new 0% card every time your current interest-free period is coming to an end.
For one thing, you’ll have to keep paying out in balance transfer fees. Most credit card issuers charge 3% of the balance transferred every time you move your debt onto one of their cards. If you’ve been shifting the same balance from card to card for years, you’ve likely racked up hundreds in balance transfer fees.
Another consideration is credit card issuers’ policies on balance transfers: Most only offer 0% promotions to new customers. This means that if you already have a card from a particular bank, you probably won’t be able to transfer a balance at 0% to any of its other cards. This won’t be a problem for the first several transfers you do, but eventually you’ll run out of issuers to choose from.
Take a hard look at your finances and address larger problems
If you’ve transferred the same balance over and over again, you should interpret this as a sign that it’s time to take a hard look at your finances. Remember, a balance transfer should be used as a debt payoff tool. If you can’t seem to get there, you might need to reconsider how you’re managing your money.
The Nerds have a few ideas to help you take control of your funds so that you can finally achieve freedom from credit card debt:
- Do some math – Do you know exactly how much you need to pay each month to erase your balance before the 0% promotion is up? If not, get out a calculator and figure it out. Then make a commitment to that monthly payment.
- Rework your budget – Revisit your monthly spending plan to be sure that you’ve allocated enough to debt repayment.
- Cut unnecessary expenses – If you need to find extra funds to meet your debt payoff goal, figure out ways to cut unnecessary expenses. Let’s be honest: Do you really need that monthly cable subscription or weekly manicure?
- Brainstorm extra-income opportunities – Besides cutting expenses, another way to get out of debt faster is to take on extra work. Consider getting a second job or taking on overtime at your current gig.
- Reach out for help – If your debt is overwhelming, it might be time to think about visiting a credit counselor. Visit the National Foundation for Credit Counseling’s site to find reputable resources in your area.
The takeaway: There’s nothing wrong with transferring your credit card debt to a 0% card. But if you’ve moved the same balance several times, you might need to overhaul how you manage your money. Use the Nerds’ tips above to get your finances straightened out!
Multiple credit cards image via Shutterstock
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