Lesson #136-Answering your questions on balance transfers and taking vacations while on debt
When I first started the show back in 2010 one of the things I set out to do was to answer listener’s questions on personal finance issues.
It’s part of why I got into coaching in the first place, to teach and help people in their situation. Well on today’s lesson I get back to that a little as I’ve been looking around on Facebook and on other money forms and have found a few questions from real life people I’d like to answer. I want to answer them today because they are questions I receive often when coaching or talking with people about their money.
First Question-Balance Transfers
The other day I decided to do a balance transfer to a 0% card. My card I am transferring from has a balance of $2048 the new card only approved me for $1000 @ 0% for 15 months. Any suggestions on how to proceed with the payoff since I will still have a balance on the old card? Is it possible to contact the new card and request a balance transfer increase? What are the odds that would work?
Balance transfers are quite popular when trying to get out of credit card debt. For those who don’t know, balance transfers are when you transfer part or all of a balance on an already existing credit card to another card via another company.
This is done because credit card companies typically offer low introductory interest rates which allows you to pay off the credit card faster, in theory. Credit card companies offer these to 1.) Get your future business 2.) Get your money by you hopefully not paying off the balance.
You can always call the credit card companies and ask to increase your limit on a balance transfer as it never hurts to ask. You might need to make multiple phone calls until they bend however. Another option is to do another balance transfer with another credit card company.
As to how to pay these off, assuming these are your lowest debt on your debt snowball, you have gone from one credit card with a $2,000 balance to two credit cards with a $1,000 balance each. I would pay off the credit card with the interest rate first, before going ahead and attacking the other one.
I say attack, because the problem I see often with balance transfers is that by moving your credit card debt to a zero percent interest credit card, people often feel a sense of accomplishment. They shouldn’t!
The debt still exists though! You really didn’t do anything, and that is the problem with debt. Interest rate is *NOT* the problem. The actual debt is the problem! As I’ve mentioned before I’m not against balance transfers in general, but I’m against them as a way to get out of debt. Because simply moving your debt to a lower interest rate is not removing the debt.
Other resources I’ve done about balance transfers
Second Question-Taking a vacation while in debt
When paying off debt what's recommended for taking vacations?
This question comes up a lot in different varieties when I work with clients. The premises of this question is do I have to wait to be debt free before I can have fun? Or can I have some fun now?
Let’s be clear hear, there is no clear cut *right* answer to this question. It all comes down to what are your real priorities? What do you value more, a vacation or anniversary gift? Or getting out of debt?
From my point of view, vacations aren’t a right, they are a luxury. For some of you, you might not agree, but because I have this view point I’m can’t recommend taking a trip while in debt. I believe this because I’ve been debt free myself for many years and have seen and talked with others who have been the same and I see what being debt free means to your life, not just your finances.
The sacrifice is worth it, I know the feeling of being debt free is better than the feeling of going on a vacation, and the short term pain is worth it for the long term gain.
Another way to answer this question is to ask yourself the following question-would I borrow money to go on this vacation? If the answer is no, then what are you essential doing by going on vacation while in debt? You are borrowing to travel.
Ultimately the choice is up to you, and it depends on a variety of things including debt level, income, and what you are prioritizing. But I would only consider doing this if I could save the money to do so. No way would I recommend traveling on a credit card, home equity loan, stop contributing to retirement, or depletion of emergency savings.
Other Resources mentioned in the show on this topic:
If you would like your questions answered on air, please send them to me at Jon@JWFinancialCoaching.com
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