3 Costly Mistakes That Led to My Balance Transfer Nightmare

balance transfer

A balance transfer can be a helpful tool to pay off credit card debt. To use this strategy, you transfer your existing credit card balance to a new credit card that offers a 0% interest rate for a limited time.

These rates (called introductory or promotional rates) make it easier to pay off debt faster because you can pay off your balance without added interest charges.

Sounds like a great idea, right? In theory, it is! But not always in practice. Here’s how my balance transfer experience turned into a debt nightmare — and how I was able to get out of it.

My balance transfer didn’t work because I didn’t want it

I learned about balance transfers when I was looking for an unsecured personal loan to consolidate my credit card debt. I’d already been approved for the loan, and I knew it would give me a three-year plan with an affordable monthly payment at a reasonable interest rate.

Then my friend (and fellow personal banker) told me I was crazy. “Why pay any interest,” she asked, “when you can get a balance transfer credit card for free?”

She was technically right, but at that time in my life, I was wary of getting another credit card. I was more than willing to pay some interest for a plan that guaranteed a payoff date and that didn’t enable me to fall deeper into debt.

But I took her advice anyway. I assumed logic was more important than my gut, and, in the end, I feel deeper into debt.

I didn’t have a payoff plan

Even though a balance transfer credit card wasn’t my first choice, I could have made it work. But that’s where my second error came in: I didn’t have a plan.

If you obtain a balance transfer credit card to pay off debt, that’s just the first step. Here are a few more things you have to do:

1. Find out how much you should pay per month

If you get a balance transfer credit card, don’t just pay the minimum payment due. That will be nowhere near what you need to pay to become debt-free by the time your 0% interest rate expires.

Instead, divide the balance on your card by the number of months you have until the interest rate increases. Make that your new monthly minimum, and you can pay off the balance while it’s still a no-interest card.

I didn’t do this. Instead, I paid whatever extra I could each month, thinking it would be enough to make a difference. It wasn’t.

2. Get a new balance transfer credit card if you have to

When your 0% interest rate expires, there are more implications than a higher interest rate. Your card issuer might charge your entire remaining balance at that new rate right away, causing a steep increase in your balance due.

Depending on the rate, that could undo a lot of the progress you made up to that point.

If you’re in the last month of your introductory rate and realize you won’t be able to pay the card off, get another balance transfer credit card. Then repeat step one until you’re debt-free.

3. Don’t use the card

Never use a balance transfer card for purchases. It’s best to stop using credit cards altogether until you’re debt-free, but if you need one for emergencies, don’t make it your balance transfer card.

Most balance transfer credit cards come with two interest rates: the balance transfer rate and the purchase interest rate.

The purchase rate is usually higher than the balance transfer rate. Because of this, it can make things more complicated for your monthly payments.

If you make a purchase on your balance transfer credit card, it’s going to be harder to understand how much you have to pay each month to pay the card off.

How I made it right in the end

My first foray into balance transfer credit cards sank me far deeper into debt than what I started with. Because I didn’t understand the promotional interest rate and paid only the minimum for years, my debt amount nearly doubled.

But I was able to pay it off in the end — surprisingly, with a balance transfer credit card.

The second time around, I made a plan. I divided my balance by the number of months in the promotional offer I was given and made that amount my new minimum payment. Then I diligently paid that amount every month, ensuring that I’d be debt-free by the time the interest rate increased.

I also made sure to never charge anything to that card. I got a different credit card for purchases (that I paid off in full every month) and created a savings account just for emergencies. That way I never had to use my balance transfer card.

Having a plan is much more motivating than just thinking, “I wish I could pay off my credit card debt faster.” To make a balance transfer successful, understand the terms of your credit card agreement, create a payment schedule, and be smart about your future credit card use.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
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5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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