Can you really win the balance transfer game?

A balance transfer can help you tackle debt faster, but discipline is key

Holly Johnson
Personal finance writer
Covers credit card rewards stories

Can you really win the balance transfer game?

A credit card balance transfer can help you dig out of debt, but it can also drag you deeper into the hole if you’re not careful. 

With the average credit card interest rate now over 17 percent, it’s no wonder revolving credit card debt is often problematic. Still, it’s not only credit card interest that spells trouble for American families; for many, cards provide an irresistible temptation to spend. 

Too many consumers charge up card balances they can’t afford and begin a cycle of struggle and debt that is hard to shake. That’s probably why 38 percent of U.S. households don’t pay their credit card balances off each month, and why the average adult with a credit card has a balance of $5,839.

Not surprisingly, many consumers turn to balance transfer offers to work their way out of debt. Some balance transfer credit cards offer 0 percent APR for up to 21 months, providing cardholders with a window of time to slay their debt without paying interest. If you transfer a balance to a 0 percent APR card and pay it down completely under an introductory offer without racking up more debt or getting off track, you can emerge free of debt.

Unfortunately, balance transfer offers don’t always pan out the way consumers want and may even result in more debt in the end. 

Get-out-of-debt plan goes awry 

That’s exactly what happened to 33-year-old Andrew Ellis, a family man who lives outside Tampa, Florida. Ellis is currently trying to figure out how to pay off over $8,600 in credit card debt he and his wife have accrued over the last several years.  

It all started with an Alaska Airlines Visa Signature® credit card the couple was using to earn airline miles on their spending. While they initially believed they could use their card for bills and regular purchases they planned to make anyway, their plan devolved quickly. According to Ellis, what ended up happening was “a lot of eating out, a hotel stay, and several other unnecessary spends that we always intended to immediately pay off but never did.”

Ellis eventually paid a 3 percent balance transfer fee to transfer his balance to a USAA Platinum Visa card to secure 0 percent financing for 12 months. But the complacency bug bit again once Ellis and his wife began paying down debt, and soon they were overspending on two credit cards now instead of one. 

Ultimately, the couple racked up another $1,500 on their Alaska card, which has an APR over 17 percent. Ellis says the balance transfer offer on his USAA card will expire soon, and he has no hope of paying off either card before then.

The balance transfer boomerang

Daniel DeLiberty, a Pennsylvania attorney who has defended over 1,000 debt lawsuits – most of them involving credit cards – says there are many circumstances that can cause consumers to fail miserably with balance transfer offers.

Many times, consumers use balance transfers as a stopgap measure to buy themselves breathing room in times of financial distress, he says. Other times it’s a "Hail Mary" play consumers try out of desperation when they really need bankruptcy or the help of a debt lawyer or other professional.

Either way, the main mistake people who use balance transfer offers make is continuing to use credit cards after they transfer a balance. We all know that you can’t dig your way out of debt while continuing to rack up debt, but for some people the temptation is too great and bad spending habits are far too ingrained.

Leslie H. Tayne, a financial debt resolution attorney and author of “Life & Debt,” works tirelessly on behalf of consumers just like Ellis who have tried and failed at the balance transfer game.

See related: 0 percent card offers: A treat, not a trick

Tayne says she recently worked with a client who racked up over $125,000 in credit card debt transferring balances from one card to another until they had so many cards they could no longer keep up with the payments. 

Like Ellis, this client’s fatal mistake was continuing to use credit cards for purchases after they transferred a balance. More purchases only led to more and more debt and higher payments, which ultimately ate up all their expendable income.

“This made them feel even more suffocated with no cash flow and they ended up borrowing from Peter to pay Paul and ended up doubling and, in some instances, tripling their original debt amount,” says Tayne.

Other mistakes consumers make include not figuring out how much they need to pay each month to get out of debt during their card’s introductory offer or failing to factor in the balance transfer fee, which is often 3 or 5 percent of the total balance transferred, said Tayne. Sometimes consumers also start the process with the intention to pay well over the minimum balance only to find they don’t have the discipline or as much excess cash as they thought they would.

The main mistake people who use balance transfer offers make is continuing to use credit cards after they transfer a balance.

How to win the balance transfer game

To win the balance transfer game, you must start the process with the right mindset, along with organization and discipline. Specifically, you need to be able to refrain from racking up more debt during your card’s 0 percent offer, and pay enough toward your balance each month to make meaningful progress.

Unfortunately, even that may not be enough if you don’t also get to the root of your problem, says Chris Peach, debt coach and founder of the Awesome Money Course. 

Peach says consumers frequently blame their money woes on high interest rates when their spending is the problem. If you’re unable to reduce your spending enough to pay down your balance and avoid racking up more debt, a balance transfer isn’t much more than a Band-Aid, he says.

Still, it’s possible to win the balance transfer game if you are adequately informed and prepared. The experts we spoke to suggest a handful of tips to increase your chances at success:

Reverse engineer your success

“Look at your current balance and determine how much you will need to pay off each month to pay off the balance before the intro offer ends,” Peach suggests. “I also recommend adding 10 percent over the monthly amount to account for those little hiccups in life we never see coming.”

As an example, imagine you have a $2,000 balance on a card that offers 0 percent APR for 20 months. You would need to pay $100 per month to become debt-free during that time, but if you budget for slightly more than that amount, it could help you rebound if you have a bad month.

Writing down your monthly budget can help as well. It enables you to find areas where you can cut spending, and to track each bill and expense as it’s paid so you stay on track.

Set up a good tracking system

DeLiberty recommends using a good tracking and reminder system to make sure you stay on top of your monthly payments and other bills. Using budgeting software like YNAB.com or Mint.com could help you create a budget as well as a framework to ensure your bills are always covered.

You could also set up automatic payments in your credit card account.

At the very least, set reminders on your phone or at work to ensure your monthly payment is made on the right day each month and in the right amount.

Stop using credit cards

To get out of debt, you have to stop digging. Like it or not, it’s crucial that you switch to cash or debit and stop using credit cards until you’re debt-free.

Ellis says he wishes he would have done this after transferring his balance, but he didn’t realize he would be so tempted to overspend. He suggests locking up or freezing your credit cards in a block of ice so you don’t end up like him.

“Do whatever you have to in order to ensure you don't fall into the trap of continuing to use a card you're actively trying to pay off,” he says.

Don’t fool yourself

Peach says it’s important to be realistic about your balance transfer goals, and also to know yourself and your own limitations.

“If you have done this multiple times and you still aren't making a dent in your debt, then balance transfers aren't helping you,” he says.

Sometimes consumers are better off seeking the help of a licensed credit counselor or a more drastic solution such as a debt management plan, debt settlement or bankruptcy. 

If you just want advice, most reputable credit counselors will offer a free consultation. You can reach a certified credit counselor at the non-profit National Foundation for Credit Counseling at (800) 388-2227 or www.NFCC.org


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Updated: 04-25-2019