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Money Girl

296 MG How to Make a Balance Transfer Pay Off

Get rid of debt faster by using a balance transfer credit card.

Broadcast on:
19 Dec 2012
Audio Format:
other

Get rid of debt faster by using a balance transfer credit card.

Building a portfolio with Fidelity Basket Profolios is kinda like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics. And managing it as one big juicy investment. That's pretty good. Learn more at Fidelity.com/baskets. Investing involves risks including risk of loss, Fidelity Brokers Services LLC, Member NYSC SIPC. Hi everyone. Thanks for downloading the Money Girl Podcast. I'm your host, Laura Adams. I also wrote the award-winning and fun guide to personal finance, called Money Girls Smart Moves to Grow Rich. Get a copy of the paperback or download the e-book from your favorite bookseller. A reader named Emily writes, "I have two credit cards that each have balances over 50% of their credit limits. The lower interest card is offering a balanced transfer at 0% APR for a limited time. Should I transfer the balance of my higher interest card and save money, even though a transfer would almost max out the low interest card and jeopardize my credit?" Thanks for your question, Emily. It brings up some important issues about credit card balance transfers. We'll cover what you need to know in order to make doing a transfer payoff. One of the easiest ways to save money on debt is to reduce the interest rate that you have to pay. This doesn't cut the total amount of debt you owe, but getting a lower rate can help you get rid of debt faster if you put your savings to work by using it to pay down your account balance instead of spending it. Let's say you have a credit card with a $5,000 balance that charges 22% interest. If you transfer the entire balance to a card that charges 0% for the first 12 months, you'll save about $875 during the promotional period. If a balanced transfer card also offers a lower interest rate than your old card after the promotional period expires, you have more potential future savings to look forward to. Emily is a smart cookie because she realizes that there's a downside to having a high balance on her credit card. It can hurt her credit. The general rule of thumb is that you should never allow balances on revolving accounts, like credit cards and lines of credit, to creep above 30% of your available credit limits. Having a low credit utilization ratio is an important factor in maintaining good credit scores. I did a previous podcast on this topic, so to learn more, be sure to listen to episode number 270 called credit utilization, what it means for your credit score. So, is doing a balanced transfer on a credit card that already exceeds 30% of your credit limit out of the question? Well, it depends on your financial goals and objectives. If saving interest and getting rid of debts sooner rather than later is more important than your credit scores, it makes sense to take advantage of a balanced transfer offer no matter your debt to credit ratio. But if you're in the process of getting a loan or want to make a big purchase soon, maxing out a card and having your credit scores go down isn't worth it. Having lower credit scores means that you won't qualify for competitive interest rates on installment loans or credit cards, and paying just 2% more interest on a $200,000 30-year mortgage could cost you over $85,000 in additional interest. That's why maintaining good credit is so important to your overall financial health. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science, and social studies. Ixcel has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems, and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning. Get Ixcel now. And money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested. So buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without cost spiraling out of control? It's time to upgrade to the next generation of the cloud. Oracle Cloud Infrastructure, or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has four to eight times the bandwidth of other clouds. Offers one consistent price instead of variable regional pricing. And of course, nobody does data better than Oracle. So now you can train your AI models at twice the speed and less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced. Oracle.com/advanced. If Emily has good credit, one option she should consider is applying for a brand new balanced transfer credit card. Not only do new customers typically get the best transfer offers, but having an additional credit line will improve her total debt-to-credit ratio and boost her credit scores in the long run. Depending on the credit limit she's offered, she could transfer all or a portion of the debt from her high-interest card or installment loans. When shopping for a balanced transfer card, look for the following features. An introductory interest rate of 0% APR for a minimum of 12 months. A low regular interest rate that begins after the promotional period expires. A transfer fee that doesn't exceed 3% per amount transferred and no annual fees. Many cards have deadlines such as 30 or 60 days for new customers to complete a balanced transfer. So be ready to make the move once you're approved so you don't miss the savings opportunity. If you can save money during the promotional period despite any transfer fees and have a similar or lower interest rate than the old card or account after the promotion expires, you'll come out ahead. Just be sure to read the fine print on any new credit card so you don't get hit with unexpected fees or interest rates. There are some great online tools that make it easy to crunch the numbers for doing a balanced transfer. Simply enter your information into calculators on sites like bankrate.com, creditcards.com, and smartbalanced transfers.com so you know whether doing a balanced transfer will pay off and improve your personal finances. You'll find a transcript of this show plus links to some of my favorite balanced transfer credit cards on the Money Girl page at quickanddirtytips.com. Just look for episode number 296 called How to Make a Balanced Transfer Pay Off. To get more money tips and advice, join the Money Girl Facebook page or sign up for the free Money Girl newsletter. I'm also on Twitter under username @lauraattoms. It's L-A-U-R-A-A-D-A-M-S with No Space. You can submit your money question on social media or email it to money@quickanddirtytips.com. I'm glad you're listening to Ching. That's all for now, courtesy of Money Girl, your guide to our richer life. [MUSIC] [BLANK_AUDIO]