We talked to credit card experts to find out who are the best candidates for balance transfer cards, what cautionary advice to keep in mind, and what other options are available. Keep reading for everything you should consider before trying this get-out-of-debt method.
Is a balance transfer card a good idea?
Dealing with credit card debt can often feel like drowning, or at least treading water indefinitely. With compounding interest piling on, it’s hard to see encouraging progress even when you’re doing your best to make payments on time, but with the interest-free periods on balance transfer cards (which are often for 12 to 20 months), you can actually make a dent. NerdWallet credit card expert Sara Rathner says balance transfer cards “can save you hundreds or even thousands of dollars in interest payments when you are paying off credit card debt.” That’s a pretty good way to start swimming toward a debt-free future. However, a balance transfer card isn’t the best, or even a viable option for everyone. Before determining if a balance transfer card is a good idea for you, there are three primary considerations you need to take into account: your credit score, your timeline, your spending, and the balance transfer fee. (Read the full podcast transcript.)
Things to consider before using a balance transfer card to pay off debt
So before going further into the process of seeking out a balance transfer card, evaluate your credit score to see if you would qualify. If you don’t meet the credit score requirements, a personal loan—which typically has more lenient credit requirements—may be an alternative option for you to tackle credit card debt. With a personal loan, you borrow a set amount of money at a fixed interest rate and make equal monthly payments on that loan for a set period of time. “Depending on your personal financial situation, your credit score, you might qualify for a loan that charges a lower interest rate than credit cards do, which would allow you to consolidate debt for multiple cards into one monthly payment, which makes budgeting so much easier,” Rathner says. However, a personal loan doesn’t come without cautions of its own. As financial expert Cindy Zuniga-Sanchez, founder of Zero-Based Budget Coaching, says on the Money Confidential podcast, it’s crucial to be mindful of the terms and have a plan for your spending so you don’t end up in more debt. “You need to walk in with a plan because in either of those situations, in the balance transfer situation or the personal loan situation, if you do not walk in with a plan, you could actually wind up being in a worse position,” she says. RELATED: On This Week’s Money Confidential Podcast: “I Owe Over $17,000 in Credit Card Debt—Help!” So, for that reason, it’s crucial to be very clear on your timeline and make a payment plan. “You want to know that you can comfortably time your payments on this debt so that ideally by the time the 0% interest promotion is over, you’ve paid your balance down completely,” Rathner says. However, that’s not absolutely required, she adds, but it’s important to still keep a timeline in mind, even when that interest-free period is up. “[A balance transfer card] can still save you money if you pay [your remaining] balance off pretty quickly, even after the promotion ends, but if you maintain that balance and then add to it and just let your debt go back up to previous levels, that’s where you’re going to get yourself into trouble,” she says. This is part of why it’s so important to really “understand your numbers,” Zuniga-Sanchez says, when dealing with credit card debt. “Pull out your credit card statements for all of your credit cards, and write down the balance on that card,” she says. “Write down your minimum payment that’s required—even though, of course, understanding that that will fluctuate month to month, depending on your situation—and then also write down the interest rate.” Having this full overview of your numbers will help your determine what move is worth it for you. “I would caution that if you take out a balance transfer card and you’re paying off your debt, but you’re still running up credit card debt on other cards, it’s a sign that you could potentially be in over your head when it comes to your spending,” Rathner adds. If you get to that point, or find yourself struggling to tighten up your spending, it may be time to seek out further assistance. This could mean seeking out non-profit credit counseling services or a financial advisor that can help you budget and make a plan for paying off debt while adjusting your spending.
