We just had this exact discussion in Financial Peace Univ last night (the Dave Ramsey class). Check out his books, they are GREAT!!
Here are some things to think about before doing a balance transfer:
- If you already have a balance on the card you are transferring to, every payment you make will go to the lower interest rate part first and the higher interest rate principal will not go down and will continue to accrue interest quickly!
- How long is the lower interest offer? Can you pay off the entire balance by then? If not, check what the rate will go up to. It could be even higher than what you have now.
- Make sure you do NOT miss a payment or are late. If you are, then the rate will go up immediately and other credit card rates may go up too. There is a new law that states other cards can raise their rates if you are late on another card.
- Remember if the interest rate is lower, then the minimum payment will be lower and it will take you longer to pay if off, so eventually you will pay about the same amount of interest. I would only do a balance transfer if you intend to continue slamming as much money as you can find onto that card to get it paid off quick! Don’t get complacent and pay only the minimum, this will take you 20 years to pay off.
- The ultimate goal is to pay it off and not charge anymore. If you balance transfer, then make a commitment to cut up and close the card that you transferred it off of.
The biggest thing to becoming financially independent is to live within your means and save. You would be surprised at how quickly you can accumulate wealth in a good money market or mutual fund. If you google “compound interest” you will find many amazing stories about how money grows without having to do anything. If you charge things on a credit card, you are essentially paying the bank instead of the bank paying you. Wouldn’t you rather have the money??
As long as you keep your balance(s) in check.
Transferring balances to lower-rate cards (assuming the fees are reasonable) will result in lower monthly payments, and paying with one of those checks instead of a personal check would mean a very-short-term relief on your wallet.
But, if the balances go up on several cards, the offers are bound to stop coming in (not to mention that your available credit on those cards with the “low rate balance transfer” offers would be getting lower and lower in such a situation).
Other than that, all the credit card banks care about is that they get something that represents a timely payment–they don’t care if it’s a balance transfer check from another bank’s card, an electronic balance transfer, or a check from your own checking account.
What we need is a low interest for about 1 yr and we will have it set up with our bank to have auto pay directly to them. Want to clean up the debt and do it ASAP. Tired of all the credit cards and the companies tricks. Know of any good cards that we can apply for or anyother way to cklean up our credit let me know. Afraid if we do the debt consolidation thing that it would end up hurting us more. Any opinions appreciated.