Don’t assume a balance transfer is the right choice until you read Suze Orman’s advice.
- Suze Orman provides advice on many different types of money matters.
- She has a simple rule of thumb to help you decide if balance transfers are worth it.
- Balance transfers can help you pay off debt, but they may not be the right choice if the fees and interest cost too much.
A balance transfer can help make it easier to pay off your credit cards by lowering your interest rate.
Credit card companies try to entice you to transfer a balance from one card to another by offering a 0% introductory rate on the transferred funds. While you’ll pay a small fee to transfer a balance, lowering your high interest rate to 0% can help make the payment significantly cheaper.
However, balance transfers are not always necessarily the right choice. To help you decide whether or not to transfer a balance, consider this simple rule of thumb from personal finance guru Suze Orman.
Here’s Suze Orman’s Balance Transfer Rule
Orman’s rule of thumb for determining whether to do a balance transfer is that you never want to do a balance transfer when the fees and interest would cost you more than keeping your balance where it is.
First, Orman stresses the importance of considering the balance transfer fee when deciding whether it makes sense to transfer a balance to a new card. “You should never pay more than 3% in balance transfer fees,” Orman said.
Most cards charge at least one fee, which is usually equal to a percentage of the transferred balance. But these up-front costs can vary by card, and she has said a fee above 3% isn’t worth paying. “You never want to pay more in those transfer fees than it would cost you to stay where you are on your old credit card and just pay it off,” Orman said.
Second, he cautions that it’s important to consider the potential interest rate you could pay. Specifically, if you still have a balance at the end of the 0% promotional period, the interest rate on the outstanding amount due could “go up extremely high.” So you need to know how much interest you could end up paying, and also assess the likelihood that you’ll still end up with outstanding debt at that point.
Should you listen to Orman?
Orman is correct in warning about the dangers of a balance transfer costing more than you would pay if you simply left your debt where it was and focused on paying it off.
A balance transfer fee adds up-front costs to your debt-repayment efforts, and may not be worth paying if the fee is too high or you were close to being debt-free with your existing cards anyway. And if you’re stuck with a balance after the 0% rate ends, you may not end up saving on interest if the rate your new card charges is higher than what you were paying with your old one.
You should always make sure you do the math before transferring a balance and follow Orman’s advice. If you add the fees and interest you’d have to pay and the cost of transferring your balance and the interest you get in the end is greater than the total costs you’d incur if you left your debt alone, you won’t want to move forward.