Suze Orman’s Simple Rule Can Help You Decide If Balance Transfers Are Worth It

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Don’t assume a balance transfer is the right choice until you read Suze Orman’s advice.

Key points

  • Suze Orman provides advice on many types of money matters.
  • She has a simple rule to help you decide if balance transfers are worth it.
  • Balance transfers can help you pay off your debts, but may not be the right choice if the fees and interest are too expensive.

A balance transfer can make it easier to pay off your credit cards by lowering your interest rate.

Credit card companies try to entice you to transfer a balance from one card to another by offering an introductory rate of 0% on transferred funds. Although you pay a small fee to transfer a balance, reducing your high interest rate to 0% can help make repayment considerably cheaper.

However, balance transfers are not necessarily always the right choice. To help you decide whether or not to transfer a balance, consider this simple rule from personal finance guru Suze Orman.

Here is Suze Orman’s balance transfer rule

Orman’s rule of thumb for determining whether you should do a balance transfer is that you never want to do a balance transfer when the fees and interest would cost you more than keeping your balance where it is.

First and foremost, Orman emphasizes the importance of considering balance transfer fees when deciding whether it would make sense to transfer a balance to a new card. “You should never pay more than a 3% balance transfer fee,” Orman said.

Most cards charge at least a fee, which is usually equal to a percentage of the transferred balance. But that upfront fee can vary by card, and she said a commission above 3% isn’t worth paying. “You never want to pay more in that transfer fee, so it would cost you to stay where you are in your old credit card and just pay it back,” Orman said.

Second, she cautions that it’s important to consider the potential interest rate you might pay. Specifically, if you still have a balance at the end of the promotional period at 0%, the interest rate on the outstanding amount could “climb extremely high”. So you need to know how much interest you might end up paying and also assess the likelihood that you will end up with an unpaid debt at that time.

Should we listen to Orman?

Orman warns of the dangers of a balance transfer that costs more than you would pay if you just left your debt where it was and focused on paying it off.

A balance transfer fee adds upfront costs to your debt repayment efforts, and it may not be worth paying if the fee is too high or you were close to being debt free anyway. any debt with your existing cards. And if you’re stuck with a balance after the 0% rate ends, you might not save on interest at all if the rate charged by your new card is higher than what you were paying on your old one.

You should always make sure to do the math before transferring a balance and follow Orman’s advice. If you add the fees and interest you would have to pay and the cost of transferring your balance and the interest you get is more than the total costs you would incur if you left your debt alone, you don’t want to go forward.

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