Suze Orman's Simple Rule Can Help You Decide if Balance Transfers Are Worth It

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

A balance transfer can help 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 a 0% introductory rate on transferred funds. Although you'll pay a small fee to transfer a balance, lowering your high interest rate to as low as 0% can help make repayment considerably cheaper. 

Balance transfers aren't necessarily always the right choice, though. To help you decide if you should transfer a balance or not, consider this simple rule from personal finance guru Suze Orman. 

Here's 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 stresses the importance of considering the balance transfer fee when deciding whether transferring a balance to a new card would make sense. "You should never pay more than 3% in balance transfer fees," Orman said.

Most cards do charge at least some fee, which is typically equal to a percentage of the transferred balance. But these upfront costs can vary by card and she has said a fee above 3% isn't worth paying. "You never want to pay more in those fees to transfer then it would cost you in actually staying where you are in your old credit card and just paying it off," Orman said. 

Second, she warns that it's important to consider the potential interest rate you could pay. Specifically, if you still have a balance at the end of the 0% promotional period, the interest rate on the outstanding amount due could "go up extremely high." So you need to know how much interest you could end up paying and also assess the likelihood that you will still end up with outstanding debt due at that time. 

Should you listen to Orman?

Orman is spot-on in warning about the dangers of a balance transfer that costs more than you'd pay if you simply left your debt where it was and focused on paying it down. 

A balance transfer fee adds upfront costs to your debt payoff efforts, and this may not be worth paying if the fee is too high or if you were close to being debt free with your existing cards anyway. And if you get stuck with a balance after the 0% rate ends, then you may not end up saving on interest at all if the rate your new card charges is higher than 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 in the fees and interest you'd have to pay and the cost to transfer your balance and the interest you end up with is more than the total costs you'd incur if you left your debt alone, you don't want to move forward.