These days everywhere you look, there are more and more credit cards offering 0% interest for 12 or 18 months on a balance transfer. These offers are everywhere on the Internet, in email, TV and in print. In addition, there are numerous personal finance articles that discuss this topic. Some articles even recommend leveraging these offers as a method of debt consolidation or as a means of eliminating debt.
If you are currently carrying a debt balance and paying interest on other credit cards or loans these offers provide a legitimate way of minimizing interest charges. Transferring those balances to a credit card that provides 12 or 18 months with no interest can expedite your process of paying off the debt. Of course this is assuming you make the required minimum payments on the new card and/or pay more than the monthly minimum during the 0% introductory period.
Sound too good to be true? Let’s look at this from a different standpoint. From the perspective of the companies providing these 0% offers.
They’re In the Business of Making Money.
Wouldn’t it be great if there were companies that offered to take over your current debt, not charge you any interest and allowed you to pay that debt off on your own terms? Unfortunately, these companies don’t exist and if they did they went out of business long ago. Which leads us to those credit card companies and banks that do provide 0% offers in an effort to secure your balance transfer. Regardless of the specific 0% offer, consider this regarding these companies.
- They are in the business of making money by providing other people credit. They make their money by charging interest and service fees on the balance. (translation; if they can get you to transfer your debt balance they can eventually charge you interest)
- They understand their customers – individuals who purchase with credit are often likely to use their card for new purchases, rather than just using the card for a one time balance transfer. (translation; you have another credit card so you will use it )
- They understand that most individuals that transfer balances are comfortable with carrying debt and making monthly payments, and in most cases will only make the minimum payment. (translation; once you use their credit card you will be ok with making minimum payments and paying interest )
- They understand that the probability of those transferred balances being paid off within the introductory period is very low. Their “banking” (pardon the pun) on the fact that you won’t pay your balance off and then they can charge you interest and/or service fees. (translation; we are going to make money off of you. )
- They understand that the process of paying off debt is much more than simple mathematics. (translation; even though the 0% offer will save you money in the short-term, we know you won’t take advantage of it – so we will end up charging you interest anyways. )
More Then Pluses and Minuses
As discussed in my book Filling The Pig, money can be an emotional endeavor, much more than pluses and minuses. Our emotions drive our behaviors and often create an environment where we repeat the same processes over and over. If those behaviors keep us in debt, then a 0% offer is not going to change our situation.
Taking advantage of a 0% offer to save on interest charges, requires an enormous amount of discipline. Miss a monthly payment or pay only the minimum during the introductory period and you’re right back where you were before – paying interest. Unless you are able to change the behaviors that put you into debt in the first place, then these offers do nothing more than prolong your time in debt.
I highly recommending using a credit monitoring service to help you manage your way out of debt. Services like Credit Sesame are free.)
If you want to get out of debt for good, you have to be able to change your behavior and your viewpoint surrounding debt. 0% balance transfer offers are nothing more than a distraction to keeping you in debt. Establishing a plan (Filling The Pig), leveraging the Snowball Method for paying off debt, and staying focused; these are the actions required for changing behaviors and getting out of debt forever.
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