Should I do a balance transfer? What you need to know before moving forward.

Balance transfers allow you to move your debt from one account to the next. For example, if you owe $3,000 on a high-interest credit card, you might be able to transfer that to an account with 0% APR. This allows you to pay down your debt faster as you’re not on the hook for interest at the start. The question is whether or not a balance transfer is right for you. “Should I do a balance transfer” was a question that I too had to find an answer to. After all, I needed to explore all options when tackling my $40,000 in credit card debt. I will share my balance transfer experience, including the pitfalls, as well as ways to position yourself for success.

My first and only balance transfer

When I was looking to pay down my debt, I explored all options available to me. I canceled unused subscriptions, reduced my expenses, and took every effort to control my spending. Something else I looked into was a balance transfer. One day when I was logged into my online banking portal, I saw an offer for a balance transfer. I learned I could transfer my high-interest balance to a new credit card with no interest for 18 months. They even offered to waive the 5% transfer fee. This offered me a great opportunity to tackle my debt more aggressively.

I called the bank and was approved for a $10,000 balance transfer. I provided them with my account details, and within days, I saw that account balance drop to $0. Of course, that meant my new card had an almost $10,000 balance. But for the next 18-months, 100% of my payments would go to paying down the principal. Awesome!

My balance transfer was great…at first

For the next few months, I paid as much as I could towards the balance on my new card. I had 18 months to pay down the balance as much as possible. Each month I watched my balance owed steadily drop. I was overjoyed as these payments were really making a dent.

Unfortunately, after a few solid months of repayment, irresponsibility kicked in. With zero interest to pay and no balance on my old card, the pressure to pay down my debt lifted. Soon enough, I fell back into bad habits thinking a few purchases here and there wouldn’t hurt. But that’s exactly the behavior that got me deep into debt in the first place. When the 18-month mark came, I had a balance on the new card as well as the old one. I spoiled a great opportunity to control my finances. Had I stuck with it until the end, I could have paid off all my credit cards much sooner.

You need to be able to follow through

You have to be responsible with any balance transfer opportunity you take advantage of. If not, you’ll end up like me, owing more money on two cards instead of one. If you’re going to use a balance transfer to pay down your debt, you have to follow through. Take the opportunity to squash your debt and avoid any temptation to fall back into old habits. The whole point of a balance transfer is to get out of a costly situation. Don’t shoot yourself in the foot by putting yourself right back in the thick of it.

Look for attractive offers

Look for offers that maximize your benefits. For example, you’ll want to take advantage of offerings that provide you with the longest period of 0% APR. These are typically 18 months. Secondly, keep an eye out for cards with no annual fees. You’ll want to avoid annual fees in order to maximize your payback power. Thirdly, keep an eye out for offers with $0 balance transfer fees. These are one-time fees that typically range from 3% – 5% of your transferred balance. These offers aren’t as common, but keep an eye out. Finally, make sure your credit is in the good to excellent range. This is important as it’s usually a requirement for a balance transfer. Here’s some additional information on credit scores.

Mobilize for the opportunity

If you’re going to move forward with a balance transfer, mobilize your money. What do i mean by this? Take every opportunity to free up as much cash as possible to throw at your debt while at zero interest. Here are some ways I used to free up my income to more aggressively pay down my debt.

Cancel subscriptions you no longer use. This is a great way to eliminate waste. If you haven’t done so, check your bank statements and see if you’re being charged for things you don’t use. You might be surprised by what you’ve managed to accumulate over the years. I personally found old gym memberships, streaming services, credit monitoring, and old apps I no longer used. Together, these made up $85/month of money I was throwing out the window.

Reducing expenses was my next target. I reviewed all the services I paid for and looked for opportunities to reduce costs. One example was downgrading my internet package. The one I was paying for was overkill. This saved me $40 a month. You can read about more cost-saving opportunities I found in my post on how to reduce expenses. If you haven’t done so already, look for ways to reduce your expenses and free up cash. This extra cash will ultimately help you pay down your debt faster, especially in a balance transfer scenario..

Another way to free up cash is to control spending. It’s amazing how quickly those frivolous spending decisions can eat away at your income. I definitely recommend reviewing your bank transactions to see if you’ve fallen into unnecessary spending habits. Once you’ve identified these, you put together a plan on how to control your spending.