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We get balance transfer card offers all the time. Unfortunately for those banks and fortunately for us, we do not carry any balance on our cards. We pay in full every month. For those who are already in credit card debt, this guest post from Joshua can be very helpful. Read and enjoy the post!
Have you heard of the balance transfer game? It seems to be all the buzz on several finance blogs that I follow and, rightfully so. Those who play the game and win…WIN BIG! But, those who play the game and lose…LOSE BIG! And in the game of personal finance, the difference between win and lose can be the difference between financial stability and financial hardship.
That being said, in this article, I’m going to explain what the balance transfer credit card game is, how it works, who should consider it, possible changes the game may make to your credit score and the rules to playing to win!
What Is The Balance Transfer Game?
Although, the process is often referred to as a game, it shouldn’t be considered as one! The balance transfer process is a financial strategy that can really save you quite a bit of money. Well, considering you have a good credit score, low debt to income ratio and you are willing to switch banks every year.
The strategy is based on the fact that most of the offers that provide transfers also provide 0% promotional interest rates for anywhere from 12 to 18 months. Balance transfer credit card business is booming and these offers aren’t going anywhere any time soon so, you should have plenty of options to transfer to year after year.
That being said, if done right, consumers stand to pay 0% interest over the term of their debt!
How The Balance Transfer Game Works
Lets consider the average American household with $10,000 in credit card debt spread over various accounts. Knowing that balance transfer credit cards are available the members of the household decide to apply for a balance transfer credit card.
Once approved, they transfer several balances to the new card and win by paying 0% interest for the promotional period. To not pay interest year after year, these families may apply for a new balance transfer credit card each year. I know, it sounds too good to be true so far right?
Well, it is, don’t worry, we are going to get into the rules and dangers of the game soon so make sure to read to the end today!
Who Should Consider The Balance Transfer Game?
As I’ve said in just about every publication I’ve every been a part of, there is no such thing as a one size fits all financial option. That being said, the same goes for the balance transfer credit card game. To qualify to play the game, you must have a good credit score so, if you don’t you might want to work on improving it first!
Also, to qualify for a spending limit that is enough to pay off the average household debt, you will be required to have a low debt to income ratio. But, if all things line up there, you might be the perfect candidate.
When it comes to playing the balance transfer game, there are a few other things that you’re really going to want to consider. First off, to play this game and win takes an incredibly financially stable person with a very responsible mind set.
Possible Changes The Game May Make To Your Credit Score
Your credit score is incredibly important, that’s no secret! That being said, if you are going to play the game, you are going to want to know about any and all changes to your credit score that it may or may not cause. That being said, there are a couple of things to take into account here…
- You’re Paying Off Debt – Paying off any debt at an accelerated rate will always cause positive changes to your credit score. If you play the game right, the credit reporting agencies will see that you are aggressively taking action to reduce your debts! As your debt to income ratio quickly drops as a result of your aggressive payoff attempts, your credit score will most likely improve as a result!
- You’re Opening A New Credit Card Every Year – Now, this can be a bit concerning if it goes on for a prolonged period of time. Although the credit reporting agencies keep their algorithms very secret, it’s my experience that you never want to play this game for longer than 3 years. If so, the consistent changes to your lending profile may make you look like a bad borrower!
Rules To Follow When You Want To Play To Win
O.K. so, you want to play the game! Awesome! But, if you want to play to win, there are a few rules that you are going to need to follow. Here they are…
Minimum Payments Aren’t An Option – If you are playing the balance transfer game, you are doing it because you want to save money. And, I can understand if you want to save money on your monthly payments but, you have to remember, you can’t play this game forever! Eventually, you will have to pay your debt off completely or, pay high interest rates because you failed. That being said, it’s important to get aggressive with your payments. It’s best to double your minimum payment or send even more than that each month!
You May Win But Lenders Never Lose – It’s important to remember the most important rule in lending when it comes to playing the game…Lenders never lose! Even if you get away with paying 0% interest until your balances are completely paid off, you will still find yourself paying fees.
For instance, when you transfer your balance, you will have to pay a balance transfer fee of anywhere from 3% to 5% of the total amount being transferred, every year, you will have a new annual fee to pay and there are tons of other ways that the lenders can get you to pay. That being said, before you ever apply for a balance transfer credit card, make sure to read the fine print!
Always Make Your Payments Early – One late payment and you can say goodbye to your promotional interest rate so, making your payments on time is more important with balance transfer cards than ever before! That being said, to ensure that you never make a late payment and pay the price, it’s best to get into a habit of making payments early!
Compare Before You Apply – As with most other lending products, there is a wide array of lenders that provide a wide array of balance transfer credit card products. Each different offer is designed specifically for a very niche group of consumers within the community. That being said, you don’t want to apply for the first offer that looks like a great deal! Before ever applying for a credit card, make sure that you compare the market to make sure that the card you choose is the best one for you!
About The Author : This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance. Join the conversation with Joshua on Google+!
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great tips, because I am sort of applying this strategy, but I was worried about a damage to the credit score due to opening new accounts. This gives me a bit more confidence in continuing this strategy.
Martin, thanks for your comment! I’m glad my article gave you the confidence you needed to make a sound financial decision!
I agree with your point about paying off the balance during the introductory rate period. Easy to fall back in the debt trap if you don’t take advantage of the low interest rate to pay off your credit card debt.
Hey Paul, thanks for your comment! Another pitfall to not paying within the promotional period is that some credit cards will charge backed interest since it was not paid in full. That can get pretty expensive!
So many things need to be in place for this to work, and for the person doing it not to fall flat on their face. And, it shouldn’t be made to be some kind of cure-all either since if you’re already in serious debt it may not even be an option. Balance Transfers May Not Be The Solution To Your Problems will explain what I mean without me hijacking this thread.
Good point of view. To me it’s mostly about self control and knowing good vs. bad implications.
Hey Eric, I completely agree. I’ve seen a lot of articles that make it seem like balance transfer credit cards are a great financial hardship plan but, the bottom line is, they are only to be used as a tool for already, incredibly financially stable people.
Balance transfers definitely work, but only if you get those babies paid off by their due date! Your tips are right on – pay much more than the minimum (calculate your own monthly payment based on when the balance transfer offer expires and what you owe) and pay before the due date. It’s a great way to knock out some debt without paying interest (minus the transfer balance fee).
Thanks Little House, I’m glad you enjoyed my article!
This can work especially well if:
1. You already have lines of credit open and unused (no need to open a new card, just take advantage of the 0% BT offer being extended)
2. Your lender offers this with no BT fees (some of my cards do this)
I have done this successful many times and continuously, shuffling the debt to another card (maybe even the same one I originally transferred it *from*! How’s that for ironic) as new offers become available.
Granted, in some cases 3-5% fees are charged, and you have to compute whether that negates the interest saved. Also, in my case, some of my cards offer a low APR for a period of time, rather than 0%. But in any case, if you do the math and manage your accounts well, you can end up saving money by doing this. It’s a free market, and lenders compete for your business – reward the banks that offer you the best terms so that you pay less interest overall while paying off debt!
Hey 444, great addition to the article. Thanks for your intuitive comment!
All too true about minimum payments! Good guidelines, here.
Thanks Mike, I’m glad you enjoyed it!
These are great tips for navigating the use of a balance transfer. You definately need to make sure that you only transfer if you are sure you can pay it off before the end of the promotional period. I
I totally agree David, thanks for your comment!
Thanks for this! I used a balance transfer in the past to help me pay down credit card debt, and it was really helpful to be able to pay the actual balance instead of interest. I was able to pay down the balance MUCH faster than I would have been able to otherwise. It’s something I will probably do again at some point.
Hey Kayla, I’m glad that balance transfers worked for you. They are a great option for those who are pretty financially savvy and, reading your articles, I can tell you are! Thanks for your comment!
interesting post SB. It’s worth a try, but people should really take into account the rules you’ve mentioned.
great tips ! I have a balance transfer currently in place which is a great way to pay down the debt versus paying higher interest & staying stuck. I particulary liked your tip on paying double the monthly payment to ensure that debt is constantly being reduced. Great article – thanks for sharing
Would it be ok to share your article on my website?
Great post, thanks for the heads up. I will work out my budgeting again so that I can pay more than the minimum payments towards my debt.