Dave Ramsey May Hate This Trick – But It Might Work For You
Famous financial guru Dave Ramsey has a well-known hatred of debt. His view is that all debt is bad debt.
It’s true that high-interest loans can do a lot of damage to your long-term financial plan. But while Ramsey’s philosophy may encourage hard work because you can get rid of your debt quickly, that’s not always possible. It may make sense to consolidate debt in a way that allows you to lower your overall interest payments. One way to do this is with a 0% annual percentage rate (APR) balance transfer. Here’s what you need to know.
What is a 0% APR balance?
Credit cards have high APRs, often 20% or more. That means if you have a large balance on a credit card, it will take significant time and money to pay off the debt, including interest. A 0% APR balance lets you transfer credit to another credit card — that doesn’t charge interest. Depending on the card, you can also skip other types of debt, such as personal loans.
Keep in mind that 0% APR offers are usually promotional, and will only last for a set amount of time such as 12-18 months.
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What to consider before using a balance transfer
While a balance transfer can help you pay less interest, it certainly doesn’t eliminate your debt — which is why it’s not a go-to strategy for Ramsey, who has long said you should always avoid credit cards. But that doesn’t mean a balance transfer doesn’t make sense for someone who wants to finally be debt free.
Balance transfers make a lot of sense for people with high-interest debt, but balances that are small enough to pay off during the promotion period. Even the best balance transfer credit cards have typical APRs that top out at around 30% once the initial promotional period is over.
It’s also important to remember that balance transfers come with fees, usually around 3-5%. Transferring money can help offset those costs if you pay off the debt on time, but letting the debt sit can cause more problems, especially if you continue to spend money.
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Put the system in place
A balance transfer probably only makes sense if you have a plan to pay off the entire balance before the introductory rate expires. Setting up automatic payments can help keep you on track.
And make sure that if you go into debt because of spending more than you earn, you adjust the way you spend money. If you don’t, you risk accumulating debt on another credit card.
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