Should I Transfer My Credit Card Balances?

Should you take advantage of a credit card balance transfer? If you’ve missed a few payments on your credit cards, you may start getting offers to transfer your credit card balances to a high-limit credit card or line of credit. These offers usually involve a low introductory interest rate – sometimes even 0% – so they can be incredibly tempting.

I fell for one of these offers back in college, after I had foolishly used two credit cards to buy a bunch of musical equipment. I had started a band, and like all young musicians, I was convinced that my band would soon have more high-paying gigs than it could handle… and I’d make my money back a thousand times over. (Ah, the foolish ways of hopeful youth.)

Anyway, when that didn’t happen, I started wondering how I would pay for all the musical crap I really didn’t need. I made a couple of payments late, and the credit card companies graciously responded by doubling my interest rates.

Almost magically, I received an offer for a line of credit high enough to transfer both balances, with a little room left over to buy more crap. It carried a 0% interest rate and no required payments for the first six months. Score! I was sure I’d figure out how to pay off the balance in six months, and be rid of the debt once and for all.

Well, as often happens, life got in the way. I took advantage of the “no required payments” feature, and when the 19.99% interest rate kicked in, I hadn’t paid a penny of the debt. Not only that, but I had ended up putting a semester’s worth of textbooks on the credit cards I’d originally used to pay for the musical equipment. So I was deeper in debt, thanks to my stupid decision to transfer my credit card balances.

Use a credit card balance tranfer wisely.

I’m not saying that a credit card balance transfer is always a bad thing. Used conscientiously (and carefully), it could provide the leverage you need to pay down debt. In hindsight, I can see a few rules that apply to successfully using this strategy.

Rules for Using a Credit Card Balance Transfer

• Once you transfer the balances, close the old accounts so you don’t use them. If you can’t bring yourself to do that, don’t carry the credit cards with you. Put them in a lock box guarded by a combination lock, a three-headed hellhound or your mother-in-law. I knew a guy who sealed his cards in a ziplock back, submerged the bag in a container of water and threw the whole thing in the freezer to prevent impulse purchases (the ice takes several hours to thaw, giving you time to think about whether you really want to spend the money). A freshly-cleared credit card balance isn’t an invitation to spend more money you don’t have.
• Develop a plan before you transfer balances. If you don’t have a plan in place to pay off the debt after the balance transfer, you’re just going to end up playing the shell game. There’s no point in transferring debt if you don’t know how you’re going to use the transfer to your financial advantage.
• Read the fine print. If things don’t go according to plan (and they rarely do), you need to know what you’re in for with your new creditor. Find out what the long-term interest rate will be, look for any fees you’ll be charged, and figure out what they’ll do to you if you’re late on a payment or two (jacking up your interest rate seems to be en vogue these days).

One last thing to think about: Opening a credit card balance transfer account raises your available credit, which makes you more dangerous in the eyes of potential creditors. This might prove to be a problem if you really need to borrow money to, say, buy a house or fix your leaking roof.

Image attribution: Andres Rueda