Dave Ramsey Says This Common Debt Repayment Approach Is “Like Trading Many Problems For One Bigger Problem”

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Is it correct that Dave Ramsay should avoid this debt repayment approach?

Key Point

• Credit card debt can be difficult to repay due to high interest rates.
• Balance transfers are a popular way to pay off credit card debt.
• Financial expert Dave Ramsey thinks balance transfers are problematic.

Credit card debt is one of the most difficult types of debt to pay off. Credit card interest rates tend to be very high. This means that when you make a payment, much of the money you send is used to cover those interest costs.

To combat this problem, many people with credit card debt use balance transfer credit cards. I advise against this. In fact, Ramsey said in his recent blog post, “This ‘solution’ to credit his card debt is like trading a bunch of problems for one bigger problem.” increase.

Balance transfer mechanism

To decide if Mr. Ramsey is right about balance transfers, it’s important to understand what exactly they are. As Ramsey explained on his blog, a balance transfer is “transferring all credit card debt to his one new credit card with a lower entry rate.”

Typically, you can get a 0% APR balance transfer card that pays no interest on the transferred debt for 12-15 months. Also, Ramsey warns that he will pay a balance transfer fee, but in reality, he will pay 4% from about 3% of the transfer amount. This equates to a very low APR compared to what I was paying with the credit card that sent the balance.

Is balance transfer the right choice for you?

With a balance transfer card, interest rates are significantly lower and the entire payment can be used to pay back the principal (the amount already owed, not just the interest). So it can be hard to understand why Ramsay thinks taking advantage of this option is a problem.

Ramsey is right about this. Unlike taking a personal loan to consolidate and refinance your debt, there is no fixed repayment schedule for moving balances. The minimum payment for the transferred balance may be less than the amount required to pay off the transferred debt before the end of the 0% APR period. So, as Ramsey warns, once your referral rate expires, your credit card debt can become very high.

Credit card minimum payments are so low that it will take decades to pay off the transferred balance if you only pay what you need, just like if you kept the original credit card debt There is a possibility. So just moving your balance doesn’t solve the underlying problem of owing money to a form of debt with a long payment term and high value.

However, if you use balance transfer as a tool to help with your payoff planning, this may be a smart move. (or most), we recommend transferring your balance for a lower rate. It all depends on your personal situation and how you plan to make balance transfers work.