Credit card help

[DakotaCowgirl]

Alright.....

I got an offer from one of my CC to balance transfer money from one account to another. It carries a 3% balance fee but the amount would be 3.99 for the life of the loan.

I know it will be tight for two months but DH gets a pay raise because of the next stripe.

Are we smart to do this?

I also balance transferred some to USAA because I got an offer for free transfer fee and 0% interest for 6 months.

Does transferring money to get ahead affect your credit score?

I want to get out of this debt and out from under MBNA and Discover. High interest rates and no customer service.

[Navgirl]

I transferred a balance with an offer of 3.99% for the life of the loan in Jan 2008. My credit score wasn't affected negatively as far as I know. My score rose 20 points in the last year since I transferred the balance but it could be because I have been making huge payments to pay off my 3 credit cards. I guess it just depends... Anyway, it was the best for me to do so. I managed to pay off my husband's NFCU CC in one year and that was $11K now I can concentrate on my NFCU CC then my last CC, the Chase card that has the 3.99 rate will be last.

[LSC12]

Originally Posted by DakotaCowgirl Does transferring money to get ahead affect your credit score? I want to get out of this debt and out from under MBNA and Discover. High interest rates and no customer service.

I can't speak to what it will do to your credit score, but if it significantly lowers your interest payments, that's more money in your pocket. I've chased lower interest rates by transferring balances, and even though there's that 3% fee, it's always been cheaper for me than leaving the balance with the higher rate card.

[DakotaCowgirl]

Originally Posted by LSC12 I can't speak to what it will do to your credit score, but if it significantly lowers your interest payments, that's more money in your pocket. I've chased lower interest rates by transferring balances, and even though there's that 3% fee, it's always been cheaper for me than leaving the balance with the higher rate card.

I switched everything today. I know how much the fees are and love the idea that I can put as much towards debt and it goes down faster! I have a good peace about this.

[LSC12]

Originally Posted by DakotaCowgirl I switched everything today. I know how much the fees are and love the idea that I can put as much towards debt and it goes down faster! I have a good peace about this.

Good for you! Generally speaking, I think fretting over how a credit score will be affected by adding or closing an account is useless. Paying on time is what really affects the score, and not taking out loads of loans relative to income. I've seen people advise, over and over, that transferring balances and closing out accounts will negatively affect a score, but all I can say is that I've been chasing low rates for years, and the only "affect" is even more solicitations for balance transfers in the mail.

[Rich Lunsford]

It is great to hear you are making the commitment to reduce your debt – especially in some tough economic times. Reducing your interest rates is an excellent way to allow your monthly payments to take a bigger bite out of the principle of the loan. However, keep a close eye on that transfer fee. 3% of a $5,000 balance = $150. Sure you get 0% after that, but do the math. The 3% fee may be more than you would pay with your current credit card before you pay it off. Figure out how much you can afford to pay to the credit card monthly and then see how long it may take you to pay off the card in full. You may find that the transfer fee is more than the interest you would pay in the long-run.

Also keep in mind that most credit card companies use your monthly payments to pay off your purchases first (read the highest interest rate first). This means that if you aren’t paying extra monthly on the card, then your transferred balance isn’t getting paid at all. Do the math and be smart. You’re on the right track. Knock out the debt and every future raise for the next stripe is truly yours. Until the debt is gone, each raise goes to pay off debt – right? Keep up the great work!

Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®).

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.