When to Consider a Balance Transfer Credit Card?

IMG_4149.PNG

I started blogging about personal finance for the medical trainee in January of 2015. The best part of blogging in today's information-rich environment is that I'm constantly learning new ways to improve my personal finances. But it wasn't always that way. Let me share with you how I got in trouble with credit cards and how I got out of that big hole...

My first experience with credit cards...

Tell me if this sounds familiar: A bright-eyed college freshman shows up on campus. He runs into some very attractive credit card representatives at a freshman-welcome fair. He signs up for his very first credit card. He soon finds himself charging anything and everything on this credit card. By the time he realized he was in trouble, he has already dug a big hole.

The card responsible for putting me in a big financial hole.

The card responsible for putting me in a big financial hole.

I was that freshman. The moment that I realized I was in trouble was during a ski trip in Denver (paid for with credit card of course), I found out that I've gone over the credit limit on my shiny Chase Freedom credit card. My credit limit was a puny $5,000. But for a full time student who makes $0 income, it might as well been $5 million.  I panicked and started reading about how to get out of credit card debt.  In the end I settled on a 0% balance transfer credit card.

What is a Balance Transfer Credit Card?

Credit cards come in many varieties.  Some focus on providing the best rewards, some emphasize great customer service, some offer added-perks such as travel insurance, lounge access etc...  But the one goal shared by all of the credit card companies is to get you to borrow money from them. A "balance transfer" allows you to pay off existing debt by rolling it over to a new credit card account. Pretty much any credit card will allow you to transfer a balance onto it. But usually for a fee. A balance transfer credit card provides the borrower with low interest rates (sometimes $0). In my case, I settled on the Chase Slate card which allowed me to transfer the balance over without a fee and a 0% interest rate for 15 months. I picked up a work study job and was able to pay off my credit card debt within that time.

When You Should Consider a Balance Transfer Card

Dave Ramsey likes to say "You can't borrow your way out of debt." While I incline to agree in most situations, I believe that a balance transfer credit card, when used under the correct circumstances, may in fact help you "borrow" your way out of debt:

  1. You are having trouble meeting the minimum payment required on your current credit card debt, or
  2. You are paying more interest on your credit card debt than you want to, and
  3. You are committed to paying off the transferred balance within the promotional low interest period. This is the most important factor. If you cannot commit to paying off that debt in the allotted time, then a balance transfer card only gives you the opportunity to dig yourself an even deeper hole.

Some Good Options

The key components that make up a good balance transfer credit card are

  1. A low interest rate (APR) on transferred balances. Preferably 0%.
  2. An extended promotional time period during which that 0% applies. The longer the better.
  3. A low balance transfer transaction fee. Preferably $0.

With that in mind, here are a few good options:

  • BankAmericard - 0% balance transfer APR for 15 months. $0 balance transfer fee when initiated within 60 days of account opening.
  • Chase Slate - 0% balance transfer APR for 15 months. $0 balance transfer fee when initiated within 60 days of account opening.
  • Alliant Visa Platinum Rewards - 0% APR for 12 months. $0 balance transfer fee.
  • Citi Simplicity - 0% balance transfer APR for 21 months. $5 or 3% balance transfer fee, whichever one is greater.
  • Citi Diamond Preferred - 0% balance transfer APR for 21 months. $5 or 3% balance transfer fee, whichever one is greater.

Bottom Line

Balance transfer credit cards can be a great option for helping people get out of high interest credit card debt. The biggest challenge to succeeding is the lack of discipline to paying off the transferred balance in a timely manner. Let's face it, that's probably the reason why you found yourself in a hole to begin with. But if I can do it, you can do it.


Sponsor Highlight

Chad Chubb, CFP ® founded WealthKeel LLC to help physicians navigate the complexities of financial planning. Today, we utilize true financial planning and custom-craft plans for residents and young doctors in the Philadelphia area and across the United States. From investments to insurance and student loans to goal planning, we tailor a plan to address your specific needs and circumstances. We will be by your side, today, tomorrow, and for decades to come to help you plan and build for all of life’s course corrections.

Schedule your free introduction call online and see if we are a good fit for you.


Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.