About six months ago, a friend of mine asked me if he should do a balance transfer. At the time, he had $3,000 of credit card debt and was paying 16% interest. I asked him how long he would need to repay it. He said six months at most, maybe three if he really pushed hard. I told him to do the balance transfer, get a 0% rate and pay down the card over the course of a year so he didn’t have to stretch his finances.
Last weekend, that same friend confessed that he still had that $3000 (actually $3300) in credit card debt. It turns out he wasn’t able to make the large payments he was planning on and had been paying close to the minimum while also making new purchases. In the process, he racked up over $200 in interest charges. By not choosing to do a balance transfer, he ended up $200 poorer and in a slightly worse financial position than he had been in six months earlier.
The reason my friend and many others who could benefit from 0% APR balance transfers don’t take advantage of these money saving deals boils down to pride. No one wants to concede that they have run up more credit card debt than they can handle and most fail to realize how quickly compound interest adds up. But if you factor in all the little unexpected expenses life throws at you, it makes sense to just bite the bullet and get a credit card with a 0% interest rate.
If, for example, my friend had transferred his balances to a credit card that offered a 0% APR on purchases and balance transfers six months ago, his current debt would be closer to $3400. If he used the money he saved on interest to pay down his debt, he would owe about $3200 or 11% less than he presently does.
Yes, we’re only talking about a few hundred dollars. But if I saw a $1 bill on the street I would pick it up. If I found two $100 bills on the street, I’d be posting about it on Facebook while driving to the casino.
Presently, credit card companies are offering some of the most generous balance transfer offers in history. With some cards, you can get a 0% rate on balance transfers for 21 months AND a 0% APR on purchases for 12 months. So rather than hoping to become more fiscally responsible in the next few months, take advantage of these deals and give yourself ample time to get your credit card debt under control. Sure, you may only save $100 or $200. But I’ve yet to figure out when saving a couple hundred dollars isn’t a smart money move.
About the Author: Jeffrey Weber is a six year veteran of the credit card industry and President of Credit Card Depot Inc. He is an active blogger and former contributor to the Forbes MoneyBuilder blog. For more information and to learn more about current balance transfer deals, visit Smart Balance Transfers.
Published or updated October 12, 2010.