Do Credit Card Balance Transfers Work?

One of the girls from a church youth group a few years back is well on her way to being a professional lender. Jennie charged her brother Sam something like 40% interest on the something like $200 he needed to buy the scooter he really wanted.

Awesome terms for Sam? Nope. But did he agree to them? Yep. And paid $280 for the $200 scooter.

This is a bit like what we all sign up for when we carry credit card debt.

But it happens so...gradually. You put something on the card, planning to pay it off, but other things come up and it just doesn't work out.

Years down the road you lift your head up and wonder how on earth you have 5-figures worth of credit card debt.

Introductory no-interest periods help ease you into using credit cards to begin with, since you can get used to using debt before the credit card company ever starts charging you interest.

The average credit card interest rate as of February 21, 2023 is 24.08%, according to Forbes. On a $5,000 balance, and using the average interest rate, you would pay just pennies less than $100 in interest every month.

That’s $100 of your hard-earned money that is not able to go toward anything in your present life.

And let’s say you have 3 credit cards and a balance on each of them. That interest painfully adds up and can be quite the burden on your monthly income.  A

This may be a real situation you're facing, especially considering how much credit card debt has increased over the years. Check out this graph from this article, recent as of the 3rd quarter of 2022.

Anyway, if all this talk about debt is making you want to tune out or feel bad for debt you may have, stay with me! And remember that I get what it’s like to be mired under especially credit card debt.

No one needs to tell you that it feels lousy or stressful; you are well aware of that. You already want to get out of debt and get free!

This is your one and only life we're talking about, and all the cool opportunities you'd like to be able to pursue without debt weighing you down.

If you have credit card debt and especially a lot of it, a balance transfer can really feel like a wonderful solution.

What is a balance transfer?

This is where you use a new credit card with a 0.00% APR to pay off your existing credit card balance(s).  

The goal is that you’ll be able to pay down the actual debt during this grace period. And instead of paying hundreds toward interest, that money can go toward the balance.

It can feel like a respite to have a new payment that is going toward just your balance. And it can absolutely feel like you’ve done something, and that feels good.

Why a balance transfer might not actually work:

You just reinforced that a credit card is the solution. Or that you can borrow your way out of a problem, which is how you got into the situation in the first place.

Also, you just moved the problem. It’s like organizing a disorganized room, and instead of dealing with the pile of miscellaneous stuff, you just move it to another room or elsewhere in the room.

You may not have really looked at the problem or the solution. I did this a number of times, and just ended up with more credit cards in my lame collection of plastic cards.

When a balance transfer actually works:

Transferring your high-interest credit card balances to a card with a 0.00% introductory rate, may be something you use to finally start breaking up with debt. But it only works when you plan out how you are actually going to use it for your advantage.

Note that I did not say that you need to plan out how it is going to work out for your advantage. The latter would make you think that the balance transfer is the solution, instead of seeing that it is your decisions and choices that actually change your financial picture.

You've already put a lot of power in the hands of credit card companies and paid a lot of money for it; now is a good time to stop that and take back the power.

I think this is why I've seen that balance transfers help at about the same time you decide to stop using credit cards.

Make a plan in advance to decide how you are going to maximize this period, and get serious about budgeting. Actually look at all your balances, your payments, your real cost of living, and decide what habits and practices you're going to change. And get serious about budgeting; it's the only way you're going to be able to work your plan.

In summary:

If you take one thing from this article, it’s that you and your decisions are the answer, not something outside of yourself. Sure, some external tools like a balance transfer may help you but make sure you see it only as a tool, not the solution.

But you dealing with the root issues of why you have started leaning so much on credit cards, and looking at your full financial picture is the real game-changer. Instead of kicking the can down the road, deal with it right here, right now. Your wonderful future will thank you.

If you don’t already have the Moso Money cheat sheet, it contains the 7 strategies you need to get the ball rolling.