The first time I heard that I could pay off my debt using balance transfer cards and not pay a penny in interest, I felt like I’d hit the jackpot. Unfortunately, balance transfer offers don’t always pan out the way they should.
I had racked up $6,000 in credit card debt after getting a raise at work and overestimating my newfound spending power. I realized I needed to stop spending and pay off that debt quickly, but the massive (25%) APR on my credit card was making it hard to progress.
This was when I discovered that some credit cards that offer a 0% APR on balance transfers for a promotional period of time, ranging anywhere from a few months to nearly two years. Perfect, I thought.
I did some research and settled on the Chase Slate, one of the most popular balance transfer cards. At 15 months, it doesn’t have the longest promotional period, but it’s still a generous amount of time. The best feature of the Chase Slate, though, is that it doesn’t charge a balance transfer fee if you make the transfer within the first few months, whereas almost all other cards charge 3%.
I was approved for the Chase Slate with a credit limit of $7,500. I immediately transferred over the $6,000 and breathed a sigh of relief. I could now make monthly payments and double down on my debt without accumulating any more interest…or so I thought.
In order to pay off my debt before the end of my promotional period, I would have to make monthly payments of $400. But, feeling relieved by my new interest free card, I decreased my monthly payments instead and only paid around $100 per month. Some months I only made the minimum payment. I liked having the extra spending money, and I decided to worry about paying it all off closer to the end of the promotional period.
Well, 15 months came fast, and as the end of my promotional period came, I had almost no money saved up to pay off my remaining debt. I scrounged up all the extra money I could for that month’s payment, which was about $800, knocking my balance down to $4,000.
It was time to come up with a plan B, and fast. I had 30 days left until the Slate’s high APR kicked in. I shopped around for a second balance card and found the Citi Simplicity. Now, this card does charge a 3% balance transfer fee, but the 0% APR period is a lengthy 21 months. Surely I could pay off my debt with that much time.
I applied for the Citi Simplicity card and was approved – things were looking up. Unfortunately, when I received my official approval letter from Citi Bank, I found out that I’d only been approved for a $2,700 credit limit, which wouldn’t cover the $4,000 balance on my Chase Slate. I had worried about not being approved for a second balance transfer card, given that my debt to credit ratio was still so high and I’d been making minimum monthly payments, but I hadn’t even considered that I might be approved but not receive a high enough credit limit.
I decided to request a credit limit increase. This would temporarily decrease my score, but I didn’t want to apply for a third balance transfer card and risk knocking my score down even more and not getting approved. Unfortunately, I wasn’t approved for a credit limit increase as I was a brand new cardholder and had never banked with Citi before.
On top of being declined for the credit limit increase, I almost missed the cut off to transfer my balance before the promotional period on my Chase Slate card ended while I waited for their response. I was able to transfer $2,600 (the balance transfer fee would add $78, putting me almost at my limit) just in time.
With $1,400 still left on my Chase Slate, and 15 days left of my promotional period, I began considering a third option to avoid massive interest charges. I didn’t have enough time to apply for a third balance transfer card, and I didn’t want to apply for so many new cards in such a short period of time anyway.
As I was going through my wallet, I realized that I still had my Choice Rewards MasterCard from the credit union I bank with, First Tech Federal Credit Union. I hadn’t used it in a couple years because the rewards weren’t as good as my other cards, but I knew that it had a very low APR of 14%. I looked into the balance transfer terms of the card, and it turned out that it was one of the rare cards with a 0% balance transfer fee. It also had a 12 month 0% promotional APR on balance transfers, but unfortunately, I no longer qualified for the promotional APR.
I transferred the remaining balance of $1,400 to my credit union credit card just in time to avoid interest fees from Chase. The first thing I did was to set up automatic payments on both cards to make sure I didn’t make the same mistake twice.
In order to have my Citi Simplicity paid off a month before the end of the 21-month promotional period, I divided $2,600 by 20, which came out to $130. I set that as my monthly payment.
For my First Tech Credit Union card, I was being charged monthly interest fees, so I wanted to start out making the biggest monthly payment I could afford. I decided that I could handle setting aside another $300 a month to pay off my $1,400 balance and set that as my automatic monthly payment. At that rate, I would have the card paid off in full within only five months and pay minimal interest fees.
While I didn’t avoid interest charges, I took a temporary hit to my credit score, and it took me much longer to pay off my debt than anticipated, my situation could have been far worse. If I hadn’t been approved for a new balance transfer card, I would’ve had to deal with huge interest fees for years.
My biggest problem, in hindsight, was my mindset going into the balance transfer offer. I saw it as a way to avoid my debt – to pretend like it didn’t exist for a while. Instead, balance transfer offers should be seen as a way to kick your debt repayment into high gear and get it paid off more quickly. Only with that mindset will you be able to take advantage of the 0% APR offer without falling into a bigger hole.
Have you done a balance transfer? How did it work out?
Thanks for the great advice!