Balance Transfer as a Debt Elimination Solution FAQ

I receive offers for a credit card balance transfer in the mail every week. Some have interest rates of 0% APR. Should I get one or more of these credit cards and transfer my credit card balances?

It depends on your overall personal financial picture, including your credit score, your ability to exercise fiscal discipline and your understanding of the details of the balance transfer offers.

What if I am in prefect shape financially and I just want to save some interest costs by paying less interest on the balances I carry each month?

Let me get very picky, and not that I want to insult anyone, but if you carry a balance on your credit cards EVERY month do not consider yourself “perfect” in terms of your personal finances.

What level of credit card balance should I have?

With the understanding that many people can not do this, I would say zero. Credit cards offer major convenience, but you can gain those advantages and pay the balance each month. Some people may want to take 0% APR balance credit cards even though they can pay the balance and invest the money instead. That case excepted, (I do not recommend this balance transfer and investment trick and if you ignore me be sure to invest ultra safely), the goal for your credit card debt should include reducing it to zero and paying future credit card balances each month they come due. Sometimes you may make an extra large purchase and take a few months to pay off that balance. I worry more about credit card debt resulting from accumulated small everyday use to purchase daily living items which remains as a balance carried from month to month. Even worse would be a situation where this balance from common expenses put on a credit card grows each month, basically using credit cards to support a lifestyle you cannot really afford.

Won’t getting new 0% APR interest rate credit card and transfering a higher rate balance always help the situation?

No, only if done properly, otherwise it may start you down the road to financial ruin.

What should I do to get the new 0% APR rate credit card, transfer my old balance and do it right?

Start by looking at how you ran up the old balance. Are you overspending? Do you need to adjust your budget or credit card habits?

Why shouldn't I do a debt settlement where I can pay what I owe at a discount or use a counseling service where they do all of the work for me instead of a balance transfer?

In both of those both cases of debt relief throught settlement and non-profit credit counseling your credit score takes a big hit. If you can still get one of these 0% interest credit cards your credit score must still be in fairly good shape. Keeping up your credit score should be a goal. If you don't know what you credit score is you should check it.

After you get the new zero interest card and transfer the balance, cancel the old credit card.

Why should I cancel the old credit card?

One of they worst debt problems I ever saw in my career as a debt attorney involved people who took offers of new credit cards just to transfer balances. The stories went like this: “We didn’t know what to do with our credit card debt, what a hole, we couldn’t climb out. Than we got a new credit card offer with a balance transfer and cash advance option in the mail, like a miracle, our prayers were answered. Six months later the same thing happened and another offer saved us again.” How long has this cycle been going on I would ask. Most times the answer would be many years. And their total credit card balances? In most cases these people managed to accumulate over $100,000 in debt! For some reason the $100,000 mark seems to be the number for a wake up call, but it also a level of debt so high for most people that from there bankruptcy remains the only option to eliminate the credit card debt. This kind of credit card debt abuse ranks as a leading cause of bankruptcy.

So you are saying to cancel the first credit card so you remove the ability to accumulate more credit card debt?

Yes. You get these offers because you pay your bills on time. The credit card companies do not know that you may be struggling to make that payment or worse that you took a cash advance from another card to make it. Do not make the mistake of thinking that if you get offered a credit card you must be in a position to accept it or that somehow the credit card company knows your financial situation better than you do and if they offered you a card it must be a smart idea.

Then start to charge on the new credit card?

No, I suggest you NOT charge on the new credit card if you took the card to transfer your balance to a 0% APR account because you were having trouble with the payments of your previous credit card. Instead, you should just make every effort to pay the card balance before the zero interest period expires.

Expires! What is this zero interest expires part?

None of these 0% APR interest rate credit cards gives you the 0% APR interest rate forever. In most cases the zero part only lasts six months or a year. In addition, be aware that if you miss a payment or violate some other term it may jump from the 0% APR immediately, sometimes to 20% APR.

How much should I pay on the new credit card every month?

Look at your balance and how long you will get the 0% rate. Try to arrange your payments so that you have the balance paid in full before the interest rate goes up.

If I need more time could I transfer that balance to another 0% APR credit card again?

I have seen people do it, but I don’t suggest it.

Can anyone get these 0% APR interest rate credit cards?

No, you have to have pretty good credit to receive one. If you begin having trouble and you hope to use one of these 0% APR credit cards to help you get out of the old debt you have to set things in motion before your credit degrades to the point that you lose this option. If you have no idea where your credit stands get a credit report on yourself. If you stand close to the score needed you may want to try some tips to raise your credit score fast.

The card company makes money several ways. They hope you will charge items on the new card, they make money each time you charge. With these cards they hope you keep the card in the long run and continue to use it. Some companies hope you do not pay the balance and you will pay them interest on the balance after the zero offer runs out. Do not figure they will be encouraging you to pay off the balance; in fact they may try the opposite and get you to charge more and transfer more. Sometimes they know you tend to carry a large credit card balance and they expect you will not pay any of it down.

What are the biggest risks of these 0% APR interest rate credit cards?

That you use the new credit card to charge more and use the old credit cards to charge still more and not pay the old balance or the new balance. I said it before, but it is so important I'll say it again. You must remain disciplined. If you worry that by having the credit availability you will use it, this may not be the right plan for you.

How many companies offer these cards?

Many more now than years ago. Just read all the terms and conditions very carefully.