Episode: 293 - The Balance Transfer Trap: Why Quick Fixes Don’t Erase Debt

 In today's world, where tempting credit card offers, balance transfers, and debt consolidation deals fill our mailboxes, it’s easy to get drawn in by promises of quick fixes for financial stress. However, these offers often come with hidden pitfalls. Here, we’ll explore why these seemingly beneficial options might not deliver on their promises—and how taking a step-by-step approach to paying down debt is a more reliable path to financial freedom. 

Understanding What’s Really Being Offered 

Have you received those glossy letters that seem to promise financial relief, even claiming you can be debt-free in a single day? While it sounds attractive, these offers are often just marketing strategies. A quick debt payoff sounds good, but typically, it only shifts your debt from one lender to another through a balance transfer or loan rather than reducing it. 

These offers are full of appealing language like "as low as 7.99% APR." Yet, the fine print often reveals a very different story, with interest rates that can skyrocket to as high as 35.99%. Moreover, these offers often extend your debt over multiple years, resulting in paying even more in interest in the long run. 

The Real Cost of Balance Transfers 

Moving debt to another credit card may offer a short-term benefit with a 0% introductory rate for a period—often around 15 months. But if you don’t pay off the balance by the end of that period, you may find yourself with a significantly higher interest rate. Banks use this strategy to turn debt into a profitable product, counting on you to carry balances beyond the promotional period. 

Making the Shift in Mindset 

To avoid falling into debt traps, changing your financial mindset is crucial. A balance transfer doesn’t erase debt—it merely moves it. If you're considering one, make sure you have a concrete plan to pay it off within the promotional period, and ensure that it will indeed reduce your financial burden. 

If you're in the habit of transferring balances from card to card and accumulating new debt along the way, it’s time to reassess. Try freezing your cards, removing saved payment methods from online accounts, and unsubscribing from marketing emails that encourage impulsive spending. 

Focusing on the Debt-Free Path 

The journey to debt freedom is deeply personal and requires commitment. Paying off debt takes time and persistence. Instead of seeking quick fixes, focus on tackling one debt at a time, creating a realistic budget, and practicing patience. Regular payments, mindful budgeting, and sometimes delaying instant gratification can set you up for lasting financial stability. 

Conclusion 

Though credit card and loan offers may seem like a fast track to financial relief, they can often create more setbacks on the road to debt freedom. A strong debt repayment plan, careful decision-making, and a gradual approach to paying down balances will keep you on course. Debt freedom is more than just erasing numbers—it’s about changing habits and creating a sustainable, financially healthy future. Keep focused, be diligent with the details, and remember that every small step brings you closer to true financial independence. 

Resources Mentioned

Get better results with your finances in 30-60 days - GUARANTEED. Watch this video to learn how! - https://www.debtfreedad.com/payoff-debt-in-60-to-90-days 

• The Totally Awesome Debt Freedom Planner
• For more help, and a step-by-step process to get started, enroll in Brad's FREE online course, LIFE WITHOUT PAYMENTS.

Free Tools and Downloads at www.debtfreedad.com

Connect With Brad

• Website - https://www.debtfreedad.com
• Facebook - https://www.facebook.com/thedebtfreedad
• Private Facebook Group - https://www.facebook.com/groups/lifewithoutpayments
• Instagram - https://www.instagram.com/debtfreedad/
• TikTok - https://www.tiktok.com/@debt_free_dad
• YouTube - https://www.youtube.com/@bradnelson-debtfreedad2751/featured

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Transcript:

Kati Hatfield Host

00:00

Do you ever get a bunch of mail that has credit card offers, balance transfers, debt consolidation, and you think, oh, that looks like a great deal? I want to help you go through and break down some of those little marketing catches that they sneak in there and help you make the best decision for your financial future. Stay tuned, all right. Thank you for listening to the Debt-Free Dad podcast, where we help everyday people like you take control of your finances so that you can live a happier, less stressful life. I am Katie Hatfield, your host for today's show, and I have been on my debt freedom journey for just over six years and in that time I have paid off over $189,000 in student loans, credit card debt, medical bills, car loans all on a single income bills, car loans all on a single income. So I got something in the mail the other day and I just had to shake my head. If you're watching online, it says pay off credit card debt in as little as one day. Don't you wish it was just that simple. I was cracking up and I'm just like all right, I have to see what their offer is, because it says you've been preselected up to $50,000 with an APR as low as 7.99%. Yeah, so they are telling you that it's going to just pay off all your credit cards in one day. That would be magical, wouldn't it? We make it easy in big letters on the inside and it says to get your funds a little bit smaller and as little as 24 hours. So they break down how much interest. You're saving 33 years of interest. If you're just making that minimum monthly payment on your credit card, you're going to spend over $26,000 of interest. If you're just making that minimum monthly payment on your credit card, you're going to spend over $26,000 in interest. But with their three-year loan they make it very, very, very tiny letters. You can pay it off in just three years and your interest is $5,312. And your interest is $5,312. So wait a minute, I thought we were just paying it off in one day. That's what the envelope said on the outside. That's what made me open it up.

02:36

No, it's actually a loan because, if you think about it, even a balance transfer means you have a balance, you owe money and you're just transferring it. You're moving it somewhere else. You still owe that balance. Why does it seem like such a hard concept to break down what those words actually mean? And you still owe money. You still owe the bank. You owe this bank or this bank, it doesn't matter which one, you still owe them money.

03:09

So all that this little fancy ad that comes in your mail is saying is like, hey, we're going to take your money that you owe this bank and we're going to move it over to this bank. We're going to make a little money on the side there as well, but you're going to pay less money. Well, technically, you're just stretching out what you have been paying already over another three years, five years, six years, whatever their term is, for the loan. And, yes, the interest might be a little bit better. But you have to read the very, very itty, bitty, tiny fine print, like I'm going to do here. So that envelope it told us it was going to be as low as 7.99. Now the 7.99% is in big green letters, the as low as that's much smaller. This example that they put inside the envelope is really 16% interest and it could be anywhere from 7.99 to 35.99%. That just blows my mind that, like I'm not going to lie, Some of my last credit cards that I paid off were over 20%, like 29% on some of them.

04:29

Those were the ones I I wanted to get rid of. So bad because it just never seemed like I was going to ever make any progress, because I was paying so much in interest every single month and it wasn't really making a dent in the principle. So you kind of have to go about these offers the same way. You really have to dig in because it's not worth it to move it from. Let's say, you have a card with 20% interest. If you're moving it over and it's going to be 35.9%, that makes zero sense, no sense whatsoever. So don't make these moves, don't fall for these gimmicks.

05:11

It's definitely a marketing ploy that they want you to just oh, we're going to see the big numbers, the flashy numbers that our marketing team came up with. To make sure those are the places you're reading on the piece of paper. We're just going to put this little tiny fine print here. Make sure you are reading the fine print. Let's see, I get these. I get so many every single week.

05:37

So, yes, as you pay off credit cards and your credit score goes up, they're like hey, you want to borrow some more money? Let's give you this card. Don't miss this big opportunity to earn. So the envelope makes it all about these rewards. So you're going to get five times the number of points on hotels and car rentals. You're going to get two times the points on supermarkets and gas stations, because we all eat and have to drive our cars, right? So you want to get double points on that, for sure. And they're going to round up to the nearest 10 points on every purchase and you get one point for every other purchase. But if you look at the actual details of the offer, they are going to charge you 19.74% interest after those first 15 months, and it could be as high as 29.99 because guess what? It's a variable rate. So, yes, a balance transfer offer looks so good when it's 0% for 15 months, but then if you don't pay it in that 15 months period, that grace period, once it is over, bye-bye 0%, hello ouch for your interest rate.

06:55

So you want to make sure you are reading all of this fine print and making sure you don't fall for the hype for the marketing. Trust me, I've worked in marketing, I've worked for a bank with all these offers and all the crazy things I promise. It is a product they are trying to sell you. We always say that debt is a product they are trying to sell you. They are marketing like crazy because, guess what? The majority of how a bank makes their income is based on the fees and interest that they charge to their customers for loaning you the money to make your purchase. And then, if you don't pay them back, the bank is like oh, we're going to charge you a whole bunch of interest. So you want to make sure you're letting them keep as little of your money as possible. Make sure that they are paying you in your savings account. Make sure you're getting the best like I'm getting 5% interest on my savings. You want to make sure you're getting the best like I'm getting 5% interest on my savings.

07:56

You want to make sure you are having that compound interest work in your favor, not against you, with all of these credit cards and loans and balance transfers and debt consolidation, all of those things I used to be the queen of. Oh, I'm just going to transfer from this credit card to this new offer for this other credit card with 0% interest, and I had every intention of paying it off in that time frame that they give you that grace period. But guess what? It didn't. Never failed, life happened and that balance did not get paid off. Oh, and the other thing after I moved the $2,000 from this card to that card, I went back to this card and started charging it again. So you have to make sure that your mindset and your behaviors are changing.

08:54

Also, when you're trying to get out of debt, you can't keep doing the things that got you into debt in the first place. You have to stop swiping that card. Put it in your safe, freeze it in the back of your freezer, hide it. Just make sure you are not falling back into the habits that got you there in the first place. That was always me. That's why I had over a dozen credit cards at one point and they were all maxed out and I was like, oh, I have just a little bit more money on here. I can, I can swipe this, I can, I can pay for whatever thing that I had to have at that point in time, had to have it that day. Oh, I've got, you know, $50 free on this card. I'm going to swipe it. You have to stop doing that. You have to put a hold on your swiping.

09:46

I love the wait 24 hours. If you are an impulse buyer, like I always have been, if you wait 24 hours instead of just going and buying that thing. Take some time, think about it. Think how much you really need it, especially when you are on this journey to pay off your debt, to get rid of debt, to lower your debt. Is that thing helping you get closer to that goal or farther away from that goal? And most of the time, if you've waited 24 hours, that thought has left your mind. That thing might still be in your cart. Also, you're going to get an email from that company that says hey, you forgot to check out. You're just one step away from this thing being yours. You have to not give into the pressure. Unsubscribe from those sale emails. You get 30 emails every morning at 9am. I can guarantee going into my inbox and pretty much just deleting 30 offers from all different companies that I one time put in my email or phone number to get 20% off my first order and then never ordered anything. But they have a deal every single day and they think I really need that deal, so they send me all of those messages.

11:08

You have to curb your enthusiasm and behaviors. Take a step back, take a second, take a breath and decide. Do I really need to keep swiping? Do I need to move this money that I already owe over to this card? It's okay if you're trying to really truly make progress and pay off your account, but you do not want to go back to that original card and start swiping again. Throw it away, cut it up, hide it, freeze it, do whatever. But you have to stop digging that hole deeper and deeper into debt if you really truly want to get out of debt eventually. It has taken me six years. You cannot just get out of debt overnight, in one day, like this offer says. Pay off your credit card debt in as little as one day. You know that is a blatant lie because you're not paying off anything, except you're just moving that money to another place where you still owe them money and you got into debt over months and years. You're not going to get out of debt overnight.

12:24

On my single income, like I said at the beginning, I have paid off over $189,000 in debt. When I started this program, I was not even making $15 an hour. I was making around $13 an hour. I got another job I was making $40,000 a year, so I was moving up a little bit, but over time I have cut so much out of my budget, out of my spending. I'm not booking a trip on my credit card and then hoping to pay it off later. I budget for it ahead of time and then I pay for it and go on the trip when I have the money to do it. And, yes, that means my debt freedom journey has had to take a little bit like oh okay, it'll take me another two or three months extra to pay off that debt, but I know that the end is near, the end is in sight. I can see that finish line I'm so excited for. But I have to give myself grace and I have to have a little fun in the process or else I would give up, because paying off debt is not the most fun thing in the world as much as I do get addicted to paying my bills.

13:38

As soon as my paycheck is deposited, I'm on my computer, on my phone, paying off all my bills. Every week I'm paying off a part of my credit card, my loan, my car payment. I'm trying to get down to those last few payments. Just be sure, if you're going to really get out of debt, you can throw most of these offers right in the trash and just ignore them. Just keep putting in the work. Just keep paying off your debt.

14:13

If you do a balance transfer, make sure you have a plan. You know what your payments are going to be. You know what you're going to be paying off. If you cannot do it in that balance transfer grace period, don't do it. Just don't get yourself into that mess where it's just going to come back and bite you later on down the road. So I hope that has helped you, give you just a little food for thought on how to not fall into these traps, all of these things that are showing up in your mailbox. Just toss them out and make sure that you stay focused on your path to debt freedom Until next time. Thanks for checking out the Debt-Free Dad podcast.