Dave Ramsey Would Hate This Trick — but It May Work for You
Popular personal finance guru Dave Ramsey has a well-known aversion to debt. His stance is that all debt is bad debt.
It’s true that high-interest debt can do significant damage to your long-term financial plan. But while Ramsey’s philosophy would encourage working as hard as you can get rid of your debt quickly, that’s not always possible. It may make sense to consolidate the debt in a way that allows you to reduce the interest that you pay overall. One way to do this is with a 0% annual percentage rate (APR) balance transfer. Here’s what you need to know.
Must Read
What is a 0% APR balance transfer?
Credit cards have high APRs, often of 20% or more. That means if you have a large balance on a credit card, it’s going to take significant time and money to pay down the debt, including interest. A 0% APR balance transfer allows you to transfer the debt to another credit card — one that doesn't charge interest. Depending on the card, you can also roll over other types of debt, like a personal loan.
Keep in mind that the 0% APR offer is usually promotional, and will only last for a set amount of time like 12-18 months.
What to consider before using a balance transfer
While a balance transfer can help you pay less in interest, it certainly doesn’t make your debt go away — and that’s why it wouldn’t be a go-to strategy for Ramsey, who has long said that you should always avoid credit cards. But that doesn’t mean that a balance transfer doesn’t make sense for someone looking to eventually become debt-free.
Balance transfers make the most sense for people with high-interest debt, but balances that are small enough for them to pay off during the promotional period. Even the best balance transfer credit cards have regular APRs that go as high as around 30% once the initial promotional period is over.
It’s also important to remember that balance transfers come with fees, usually around 3-5%. The transfers can be worth that cost if you pay off the debt in a timely manner, but letting the debt linger can create additional problems, especially if you continue to spend money.
Extra Money: See how you can get up to $1,000 in stock when you fund a new active SoFi invest account
Put a plan in place
A balance transfer probably only makes sense if you have a plan to pay off the entire balance before the intro rate expires. Setting up automatic payments can help keep you on track.
And make sure that if you get into debt due to spending more money than you earn, you adjust your spending habits. If you don’t, you risk racking up debt on another credit card.
Save Smarter: Take control of your money with the Rocket Money budgeting app, one of Money's favorites