reflections on our recent credit card balance surfing

September 19th, 2007

Reflections on Our Recent Credit Card Balance Surfing

So the transfer is done. I’ve moved a little over $5100 from Capital One to a Citicard through a promotional 0% interest for 12 months no transfer fee offer. It’s there, I’ve even made my first snowflake payment to it, and my Capital One balance stands at $0.00. That will change when my next statement posts because I will have some residual interest to pay, but that will be done quickly and the Capital One card will be done for good.

So, what have I done? Did I make the right decision? Would I do it differently if I did it again? And do I have any lasting concerns about making the move? NCN asks all that and more in Day 17 of 33 Days and 33 Ways to Reduce Debt and Increase Savings: Carefully Consider Surfing Credit Card Balances.

First off, I definitely made the right decision overall in surfing my balance to a new place. I was paying first 10.9%, then 9.9% in interest every month and there was no need for me to do that. I had called Capital One to get a rate reduction, which is how it went from 10.9% to 9.9%, but I had much better options at my disposal than that. Moving the debt to lower interest was definitely the right long-term move. I wish I had had the initiative to move it sooner.

There are a few things I would do differently if I did it again. This new card we got with the promotional transfer had an initial promotion that if you bought something with the card in the first 90 days, you’d get Thank You points equaling a $50 gift card. So I did, and I shouldn’t have. Not that anything bad happened, but by the time my payment cleared and a new billing cycle started (there was no way I was locking some little purchase accruing interest behind a huge balance transfer) I’d probably paid close to $50 in interest to Capital One. So basically, I wasted that time and money. I should have foregone the gift card and just transferred my balance right away. The other thing I would have done differently is that I would have done this a while ago. Even if I couldn’t pay it all before the promotional period ran out and I had to pay a balance transfer fee on a much smaller balance to transfer it somewhere else for a better rate (the non-promotional rate on this card is not great), it still would have saved me a *lot* of interest in the long run. But I didn’t. At least I have now.

I do have a few lingering concerns. I am convinced this was a positive move, but I wonder if there was another option that made better long-term financial sense. I had an offer from my Bank of America credit card of a 2.99% interest fixed for life of the balance with a 3% (no cap) transfer fee. Even with the fee, this would have worked out to less money spent overall when looking at all of my debts together, because I could have started just paying the minimum on the credit card debt and focused on paying off my 9% and 7% interest student loan debts. Should I have gone to 2.99% fixed and started aggressively paying off student loan debt instead? It would have worked out to some savings in the long term, but I decided it was more important to me to rid myself of credit card debt first. This 0% offer was the most expedient way to accomplish that. But I still wonder if by making the choice to do it this way, I’m revealing that I still don’t have the best financial sense. I mean, it should be all about the numbers and emotions should stay out of it. But I’m still human.

The other thing I still ponder is if this whole balance transfer move is another case of me counting on future income to solve past problems. If we don’t pay off the card by the date the 0% interest expires, then we revert to a higher interest rate (a variable rate right now at about 13%) than we were at with the Capital One card. I’m counting on our income to stay steady or rise, and our expenses to stay steady or fall, to do that, and it is a risky gamble. However, I’m going into this with my eyes wide open, versus the last time I counted on the future to pay for the present, and I know I have a few options if it doesn’t work out as I’ve planned. At the end of the year, if the balance is low enough, I can just pay the interest until it is paid off, which since the balance will be lower than now, will result in less interest being paid overall. Or if I have a good transfer offer with a minimal fee, I can move the remainder of the balance to one of my other two cards (back to Capital One or over to Bank of America), both of which send me balance transfer offers regularly for very low rates. I also now have an emergency fund to fall back on – not to pay off my credit card, but to cope with life’s little emergencies that may come up to try and derail our progress. So I am feeling much better about this situation than I have in the past. But still I do wonder…. am I becoming smarter about my money or just coming up with more creative ways to mess it up?

Only time will tell. But I think I’m on a good path with this whole balance-surfing thing. I think.

~J

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9 Responses to “Reflections on Our Recent Credit Card Balance Surfing”

  1. Good luck paying down your debt. It’s nice to know that you’re no longer paying interest on your debt…Now, you’re just paying what you owe. Really concentrate on paying down that card, so you can get it paid off by the time the 13% interest rate kicks in.

  2. I think you did the right thing. Saving 10% on $5,000 is significant. Just mark your calendar so that you remember to make phone calls next year.

  3. @SavingDiva – I am concentrating. Must pay down debt.

    @ Pinyo – I think it was the right idea too. I don’t know if was the perfect right idea but it was good enough.

  4. You did the right thing, but you definitely hit on a point worth considering. If something did come up that prevented you from paying it off before the higher rate kicks in, it would be a bad decision. So is the risk of that happening (a) estimable and (b) manageable?

    It really paints the problem with debt in the first place – you are obligating yourself to something in the future that you really can’t promise, the ability to pay in the future. In that sense you should really stick with the lowest current rate.

    But I think you did the right thing because, at the end of the day, the intention to repay is the key thing. If you were just doing it to coast, or rushed out and bought a Wii tomorrow, it would be a bad idea to get a 0% card. Since I’m confident you’re aiming to eliminate your debt, I’m sure you’ll pay it off before the 0% is up – good intentions are key!

  5. The risk is estimable as low but not miniscule – my spouse’s job is as secure as any job can be, so we’re in a good position to at least pay off a lot of it even if bad things happened with my contracting (which is much more flighty). So the risk is not too big but it is still there. Manageable, well, it depends on the why behind the failure to meet the deadline. We’ve thought out a lot of scenarios but there’s always the unexpected.

    You mean I can’t buy a Wii? Darnit! lol

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