Paying off credit card debt can be a major challenge. This is true, in part, because credit cards tend to have very high interest rates. Once you’ve built up a balance on your credit cards and need to start paying interest, a good chunk of every payment you make will go towards those interest charges rather than reducing your principal balance. It is therefore costly and time-consuming to free yourself from your debts.
To reduce credit card debt costs and make repayment easier, personal finance guru Suze Orman recommends exploring if you can qualify for a balance transfer offer. Is she right? Keep reading to find out.
Here’s how Suze Orman says a balance transfer can make debt repayment easier
As Orman explains, a balance transfer agreement is offered by credit card issuers to trick you into transferring your existing credit card debt balance to their card. These transactions typically allow you to pay a nominal balance transfer fee to move the balance of one or more creditors. The transferred balance is then subject to a promotional interest rate of 0% for a limited period of time.
0% balance transfer card allows you to pay no interest at all for months after you’ve paid the initial small balance transfer fee (which is usually around 3%). Often, you will have a full year (or more) to work on paying off your debt at the 0% rate.
As Orman says, tackling your debt is much easier than paying 16% or more interest on your credit card. When you don’t owe any interest, every dollar you pay on the card goes towards reducing the balance owing. Your balance will go down much faster, and your debt will cost less and be easier to pay off. As Orman explains, the benefits of this may more than justify paying a low fee because of the substantial amount you can save on credit card interest.
Of course, Orman cautions that you should read the fine print as there could be some pitfalls to watch out for. Specifically, if you make late payments, you could lose your promotional rate and find yourself stuck where you started with a high rate card.
And it also warns that your rate could go up sharply if you haven’t paid off your entire balance before the 0% rate ends. She suggests that this could be a âgood motivationâ to pay off your debt on time.
Should you listen to Suze Orman and make a balance transfer?
Orman’s advice here is excellent. There is no doubt that balance transfers can save you money on interest and allow more of your payment to go to principal, which in turn can help free you from debt. your debts as soon as possible.
If you can qualify for a balance transfer card, there’s no harm in following his suggestion, and you could end up in a much better position. However, there are a few caveats to be aware of.
You can’t confuse transferring a balance with real progress on debt repayment. Balance transfer is a tool to help make repayment easier, but you still need to commit to making the monthly payments needed to bring your balance down to $ 0 – ideally before your 0% rate ends.
You also need to be sure that you are in control of your spending. If you are transferring a balance but still living beyond your means, there is a risk that you end up charging a lot of things you can’t afford on the cards with the credit you’ve released. It could mean that you are digging a much bigger hole for yourself because you have the balance transfer card to pay off. more you now have a new credit card balance to manage.
But if you live on a budget and can afford to make the necessary payments to pay off your transferred balance, Orman’s suggestion is great and you should start looking for the best balance transfer cards today. .