How we saved big with a balance transfer

When my husband and I started dating in 2004, he moved across the country to go back to school and live closer to me. Yep, much to our surprise {insert sarcasm here}, his bachelor's degree in theater arts hadn't helped him land his dream job. Therefore, he decided to do something different instead and chose to pursue a bachelor's degree in mortuary science.

As it is with any life-changing decision, this move had financial consequences. Still, leaving Chicago was mostly a good thing. Not only would he have a chance at a more lucrative career, but it also meant slowing down and abandoning an excruciatingly high cost of living. On the other hand, moving to Cincinnati to finish school meant taking on student loans which severely limited his income for two years.

The Cost of Maintaining Appearances

But we were still dating at the time, and you know what that means. Instead of telling me he couldn't afford it, my husband (then boyfriend) would take me out to dinner, to the movies, and to see or do basically anything I wanted.

Eventually, however, it caught up to him, and a showdown ensued. At a certain point, I realized that his credit card balance was growing quickly — and it was mostly because of me.

Even though I wasn't very sophisticated at the time, I knew that a surging credit card balance wasn't a good thing. And it didn't take us long to realize that he was paying a rather steep price just to carry a balance in the first place — a whopping annual percentage rate (APR) of 20.99 percent. With an interest rate that high, even carrying his relatively small balance of around $2,000 was fairly devastating. But, what could we do?

Taking Control — Researching How Balance Transfer Offers Work

After talking it through for a while, we decided that the first thing he should do was to stop using the card. So that's exactly what he did. Unfortunately, that didn't solve the problem completely. We still had around $2,000 in credit card debt to kill.

So we searched the Internet for ideas and found out that it was possible to transfer the balance from one card to another with more attractive terms. But we needed to know exactly how that worked. Eventually, we found the perfect balance transfer offer — a card with a 0% APR for 14 months with zero balance transfer fees. Here are a few things I learned during the process:

  • Many balance transfer offers include a 0% APR for a limited time. When I started searching for the best balance transfer offer I could find, I stumbled upon a number of options with a 0% APR for a limited time – usually between nine and 16 months.
  • Balance transfer fees can apply. Although the balance transfer offer we pursued was fee-free, almost all balance transfer offers charge a fee between 3% to 5% just to make the transfer. For a $10,000 balance, that can mean paying $300 to $500 up front. If you are saving a bundle on interest, however, that up-front fee can quickly pay for itself.
  • Balance transfer offers are not all created equal. Although the balance transfer offers we looked into all had attractive terms, some were definitely better than others. For example, the length of the 0% APR promotional period varied greatly between offers. When you are in debt, there is a big difference between having 0% APR for six months and 0% APR for 18 months.
  • Many of the best balance transfer offers were only available to those with good or excellent credit. Since balance transfer offers usually offer excellent terms, they are almost always available to individuals with excellent, or at least good, credit.

Time is of the Essence

In a lot of ways, we were lucky. Although the vast majority of balance transfer credit card offers charged a fee of 3% to 5%, my husband somehow qualified for a special promotion with no fees involved. After realizing what a great deal this was, we pounced quickly and transferred his $2,000 balance right away.

That meant that, instead of paying a 20.99% APR, he was suddenly paying zero. In other words, every cent he paid during the 0% APR promotional period would go directly toward paying down his balance. We knew we had to take advantage of this opportunity immediately — but how?

How to Use a Balance Transfer to Become Debt-Free

We decided on a two-step approach to eliminate his debt:

  1. The first step involved sticking to cash for a while. After all, it's a lot harder to pay down credit card debt when you are using credit on a daily basis. We all know how those balances can creep up over time, and giving up credit altogether was the easiest way to make sure that didn't happen.
  2. To make the most out of the balance transfer while also preserving my husband's ability to survive on a low income, we came up with a crafty plan to pay off his debt over the span of the entire promotional period. Since he had 0% APR for 14 months, we took his balance ($2,000) and divided it by 14. After rounding up a bit, we ultimately decided on a monthly payment of $150 for 13 months and the balance of what was left at the very last minute.

Is a Balance Transfer Offer Right For You?

Although balance transfer offers aren't for everyone, they can make a whole lot of sense if you are paying an unreasonably high interest rate and have decent credit. In most cases, you can transfer the balance from a high-interest card to one with better terms and lower interest without any hassle other than filling out an application and following through.

The savings for such a move can be huge. If you are carrying a $10,000 balance with a 15% APR, for example, you are easily paying more than $1,500 per year in interest alone. The right balance transfer offer could knock that figure down to zero for a period of six to 16 months. And if you're able to pay your debt down altogether during that time, you could save a bundle of money and become debt-free all in one fell swoop.

Just remember to factor in any applicable balance transfer fees or annual fees before you pull the trigger. And no matter what, you should also take the time to read through all of your new card's fine print, terms, and conditions. The savings may still be substantial, but it is important to make an informed decision.

Have you ever taken advantage of a balance transfer offer? How much did you save?

More about...Debt

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
18 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Shobir @ Millionaires Giving Money
Shobir @ Millionaires Giving Money
5 years ago

I use to use balance transfers all the time to save money on interest. Now that I’ve paid off my debt I use balance transfers to invest the money, some credit cards in the UK offer direct deposit into checking account which means I can invest the money and make a profit on the difference. Great post, thanks for sharing your experience.

Brett
Brett
5 years ago

Great article. Some additional notes for the readers. 1. Don’t use balance transfers to avoid actually paying down the debt or changing spending behavior. I know that is not what the author details, but just like credit can be used well or poorly, so can balance transfer offers. 2. More info on fees; there can also be a minimum fee or a fee cap for balance transfers. Depending on your situation, this could be big. Smaller transfers might get hit with a min fee above what the percentage of balance would be and large transfers can often save because they… Read more »

Ella
Ella
5 years ago

I recently got married, and we were looking to buy a house. I have better credit than my husband, and so we realized that we could both improve his credit, and save on interest by transferring a balance from him to me. When my bank offered an incentive for balance transfers (lower interest for 1 year, and no transfer fees), we transferred a high interest balance to me. Because he was then using less of his available credit, his credit score went up. And since when you apply for a mortgage jointly, the mortgage rate is apparently based on the… Read more »

PJ Ryan
PJ Ryan
5 years ago

Great story! I think one of the critical factors of success in using balance transfers is the complete and utter commitment to paying off the balance completely. Balance transfers are a dangerous game if you’re looking at them as a tool to keep spending or temporarily get yourself out of a jam.

lmoot
lmoot
5 years ago

A balance transfer didn’t save me money (well not directly anyway), but it saved ME. I’ve only done 1 and that was so that I could quit a stressful job and postpone paying for my 2 month trip to Africa. It wasn’t the ideal time to go, but it was the only time I could go. Since I wasn’t working full time, and didn’t work at all for 2 months, it was absolutely necessary to hold onto whatever cash I had. The transfer cost me $90 (which was eventually paid for via reward points), but it gave me 18 months… Read more »

Jessie
Jessie
5 years ago

I have been reading this site for many years. I would like to voice my option before I leave. I know it is no longer the same site that JD started, but it is no longer even close enough to what is was that I won’t be visiting anymore. You have lost your way.

Greg
Greg
5 years ago

I understand the intent of this article was to provide a helpful tool for those looking to get out of credit card debt more quickly – but I can’t reiterate enough that a balance transfer does NOTHING to eliminate your current debt obligation. It only potentially slows down the rate at which you’re accruing interest on said debt.

Even the header of this paragraph is misleading:

*How to use a balance transfer to become debt-free*

It should read: “How a balance transfer can help while you’re becoming debt free”. Again…until you, the debtor, pay off principle…you’re not paying off debt.

Mr. Chen
Mr. Chen
5 years ago

Great story!

I’m glad the both of you were able to pay down the balance. As most of the previous commenters have said, balance transfers are a dangerous game, but if you’re willing to buckle down, spend less, and pay off the balance. It will serve as a great tool.

I personally consider balance transfers a double-edged sword is used in the wrong way.

Regards,
Mr. Chen

Bryan
Bryan
5 years ago

Using balance transfers are definitely a way you can “game” the system as a method to save money in interest expense. The key is to not perpetuate the underlying issue that got you to that point in the first place. I would only recommend taking this approach if you are following your 2 step plan, i.e. stop incurring new debt and set up an automatic schedule to pay the balance off before the 0% period ends. If you don’t pay the full balance off in that time period, the credit issuing company can go back and charge interest on the… Read more »

Jacob
Jacob
5 years ago

see this video and replace payday loans with credit card debit https://www.youtube.com/watch?v=wFwPAMeVPE4

lmoot
lmoot
5 years ago

I wrote out a really long comment but like my comments to 3 or 4 articles over the last couple weeks, the confirmation box pops up, I click ‘ok’ but my comment never appears. Is there a known issue with the comments?

Beth
Beth
5 years ago
Reply to  lmoot

I’ve been having problems too. I wonder how many other people are as well? There have been so few comments lately.

Mike in NH
Mike in NH
5 years ago
Reply to  Beth

It has happened to me a few times. Oddly the times that it happened was when my comment was somewhat critical/constructive.

Not big on conspiracy theories…just sayin.

As for the article – probably should be discussed that balance transfers can be a good tool if used wisely for your situation but that repeatedly using them to work the system can also look shady on your credit history.

Linda Vergon
Linda Vergon
5 years ago
Reply to  Beth

Hi Beth and IMoot,

I’ll bring that to the attention of our development team and try to find out what the problem is.

Thank you both for mentioning that your comments aren’t getting posted.

Best,
Linda Vergon
Editor of Get Rich Slowly

Linda Vergon
5 years ago
Reply to  Linda Vergon

Hi Beth, Imoot, and Mike in NH,

We found a few of your comments in our spam filter and have restored whatever we saw. Please let me know if you see any further issues around comments not being posted. How frustrating! I’m sorry!

You can reach me at @Get Rich Slowly Editors.org">lvergon@Get Rich Slowly Editors.org if you need to.

Thanks, and have a great weekend!

Linda

Kayla @ Femme Frugality
Kayla @ Femme Frugality
5 years ago

I recently did a balance transfer too Holly. I transferred one of my highest balances that was also one the highest interest rates. The 0% APR lasts for 12 months and there was a 0% transfer fee for the first 6 months. If I make incredible progress in the next few months, I may transfer some more before the 0% transfer fee period is over.

Evangeline
Evangeline
5 years ago

I miss J.D.’s insight and focus. I’m sure the current writers/powers-that-be mean well but, alas, something is lacking.

edi
edi
5 years ago

I have been using balance transfers for about three years now. My initial credit debt was at around 15k (good college times). Debt was spread between more than two credit cards for which interest rate were between 12% – 29%. Once turning into a responsible adult (and seeing myself if in a hole) i started accepting 0% offers with fees no more than 3% and promotional period of no less than 1 year. The start was a rough one but three years after and i’ve been able to pay off 70% of my debt. The remaining balance i still have… Read more »

shares