Is a Balance Transfer Right for You?

It is difficult to give generalized financial advice. Because everyone’s situation is different and the dollars are in the details. Having said that,  here's a look at the benefits of a balance transfer.

A balance transfer is when you move the debt from one debt instrument to another. In most cases, a credit card is the receiving instrument.

​Some pros to doing a balance transfer.

• The balance that you transfer will payoff an account. The debt did not go away. It moved to a lower rent neighborhood.
  • ​​If the reason you are doing the balance transfer is to pay off higher interest debt then it may be a wise move.  
  • For example, if you transfer to a promotional offer, such as “no interest for 6 months on balance transfers,” it will allow you to pay off debt quicker. Provided you make the same payment you were making on the debt as before the transfer.​

• Another advantage of a balance transfer is that it allows you to merge payments. It may be easier to focus on one bill as opposed to splitting money between two or more.​​

Some things you should be aware of when making a balance transfer.

---

• A balance transfer is not interest free. It’s in the fine print. There is a transaction fee.
  • The fee is usually a set minimum or a percentage of the transfer amount whichever is higher. That is interest by another name, in my book.  Make sure the fee makes sense for the amount of time you will have the transfer.

​

• ​The transfer may wreck your credit utilization ratio and damage your credit score.  This is true for the FICO  and VantageScore models. ​​​

​​​

• The promotional period may only provide deferred interest. Once again, it is in the fine print.
  • So if the balance transfer isn't paid off during the promotional period you will owe the interest from the beginning of the promotional period at higher cash advance rates.

Zero interest balance transfers can be a successful debt reduction tool.  They need discipline to be effective. Or they can lead to more debt.