Balance Transfers Don't Do Anything

Kelsey asks if she should transfer the balance of her credit card to one with a lower interest rate while she pays it off?

QUESTION: Kelsey on Twitter asks if she should transfer the balance of her credit card to one with a lower interest rate while she pays it off?

ANSWER: Yeah, if you want to, Kelsey. It’s okay, but I don’t want you to think you did anything. You really didn’t do anything. You just moved the money around a little bit, and you saved a little bit of interest, but it’s a tiny, tiny amount of money that you’re actually saving because you think about how fast you’re going to pay that thing off, and if you pay it off in six months, it’s only half of a year’s worth of interest. And when you add that up on that credit card, it’s really not that much money.

If you were going to keep the debt for 30 years, it becomes a big deal. Interest rate’s a big problem then. But when you’ve got money borrowed for five, six months, four months, whatever it is you’re going to do until you get that paid off, it’s not a lot of deal.

The big problem with balance transfers is you feel like you did something. Then you don’t concentrate on a garage sale and an extra job and selling so much stuff the kids think they’re next and getting on a written budget and living on beans and rice, rice and beans on a scorched-earth lifestyle until you get your mess cleaned up. That’s 98% of getting out of debt. Two percent of getting out of debt is interest rate. So don’t feel like you did anything, but you can move it if you want to.

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