During the 0% balance transfer credit cards craze of past years, many of my friends were calling me ignorant for not taking advantage of free money. The idea was simple. Apply for a few credit cards offering 0% balance transfers, make the transfers to a high yield savings account and pocket the difference in interest.
The tactic worked well, earning them a couple hundred dollars before taxes per card. However, I never bothered. It seemed weird. It just wasn’t me and subsequently, I never talked about it here.
Last week, a reader wrote me an email that really changed my perception of these 0% balance transfer cards.
David, you have to write about these 0% balance transfer credit cards. I used one and it helped pay off my debt a year ahead of schedule
Whoa. That got my interest.
The 0% Balance Transfer Story
Apparently, my reader Shelby (fake name as she requested to stay anonymous), used these cards to transfer all her credit card debt onto 2 cards with 0% interest. Then instead of spending more money, she tried her hardest to pay them off. It was a great strategy (minimum work, significant benefit) and based on her calculation, the lack of interests helped reach her credit card debt free goal 394 days ahead of time.
She said more people should take advantage of these offers to get out of debt and I totally agree. All you need to do is apply for 0% balance transfer credit cards and watch your debt shrink much more rapidly. To get started, here are two choices you must consider.
Citi Platinum Select MasterCard
- 0% Intro APR on balance transfers for 18 months and 0% Intro APR on purchases for 12 months
- Extra Cash from Citi: enjoy discounts on gift cards, travel, merchandise and more
- Includes Citi® Identity Theft Solutions
- There is No annual fee
Click Here to Apply for the Citi Platinum Select MasterCard
Citi Dividend Platinum Select MasterCard
- 0% Intro APR on Balance Transfers for 15 Months
- Earn 5% Cash Back at Restaurants and on Car Rentals and Hotels from 7/1/10 to 9/30/10. Enrollment Required Each Quarter
- Full 1% Cash Back on All Eligible Purchases and Cash Advances
- Earn Extra Cash Back on Popular, Rotating Categories Each Quarter
- Average 5% Additional Cash Back Through Citi Bonus Cash Center®
- No Annual Fee
Click Here to Apply for the Citi Dividend Platinum Select MasterCard
Discover More Card
- 0% APR Balance Transfer for 6 Months (Note that the 12 Months Info You See Everywhere Else is Wrong, This Cards Offers 6 Months of Balance Transfer, Not 12 Months with 5% Transfer Fee!)
- 5% Cash Back Bonus in Categories like Travel, Home Improvement, Department Stores and Gas
- 5% to 20% Cash Back If You Buy Through Their Exclusive Online Store
- Up to 1% Unlimited Cash Back on All Other Purchases
Click Here to Apply for the Discover More Card
Bonus – For a limited time, Discover will give you $50 cash back bonus after you make $599 in purchases during the first three months. It is only available through this special offer and I’m not sure how long it will last, so go get the free money while it’s still available.
Note: The only way to take advantage is to make sure you still try to pay off your debt as quickly as possible. Do just that with these 0% balance transfer credit cards and you will be debt free like Shelby in no time.
- Citi Platinum Select MasterCard – Official Application
- Discover More Card – Official Application
What is a 0% Balance Transfer?
An insightful and exciting way to decrease the burden of credit card debt, while at the same time not having to pay exorbitant interest fees, is to take advantage of a 0% balance transfer credit card offer. Sure, this may seem like a foolish exercise in futility at first glance – taking out a new credit card account to get rid of credit card debt – but nevertheless, the fact remains that this can be a remarkably effective tool in your arsenal when you want to save money and diminish credit card debt.
A 0% balance transfer is a marketing tool used by credit card companies to increase the number of customers holding accounts with them, and also increase the amount of debt held within those accounts. While these balance transfers are effective for the credit card companies, they also can be a powerful aid to customers who wish to save money and pay off credit card debt. This is how the process works:
First, a customer opens a new credit card account that offers a 0% interest balance transfer program. These are not usually difficult to find, although there are variables about which customers should be aware. Some balance transfer offers are considerably longer than others, and in this case, longer is definitely better. In addition, customers would be well advised to pay close attention to the interest rate after the period of zero interest expires. It will, of course, be increased. However, some companies will charge incredibly high rates after the end of the initial period with no interest. Because of the importance of these types of details, it is absolutely vital that a customer read the fine print very carefully before deciding which credit card offer to accept.
Once the new account has been opened, customers will usually find the telephone operators with their new credit card company more than willing to assist them in transferring the balances to their new account. This is to be expected, of course, because they want as much of that money transferred into that account as possible – right up to the limit! How that account is managed after the transfer is what will make the difference in how much money is saved over the course of the zero interest period.
Once the new account has high-interest funds transferred in, this is the best time to pay down that balance as aggressively as possible. By doing this, customers may be able to completely pay off much of the credit card debt without incurring any interest fees at all, saving significant amounts of money. It is, however, vital to remain aware of when the zero interest promotion ends! In the event that there is still a balance remaining on the transferred balance as this time period comes to a close, it may be possible to open a 0% balance transfer credit card with another company, and continue the cycle further. Again, looking out for the longest period with a 0% balance will help you to diminish debt and save money.
How to Calculate When Using a 0% Balance Transfer Makes Sense
When deciding what to do about your debt, one common question is how to calculate when using a 0% balance transfer makes sense. 0% balance transfer credit cards are promotional offer that creditors extent to attract customers. The offer permits you to transfer balances from other credit cards onto the new card at an amount up to your credit limit. You will pay 0% interest on the money transferred for a set period of time, usually between six months and one year. After this period of time, any remaining balance will default to the normal interest rate, under the terms of most cards. Most 0% balance transfer credit cards charge you a fee to transfer the balance. The industry standard is a 3% fee. This fee used to be capped, which meant that there was an upper limit maximum that would be charged. However, with the recent credit crunch
Calculating Whether 0% Balance Transfer Credit Cards Makes Sense
Your first consideration when calculating whether the 0% balance transfer credit cards make sense should be determining whether you will save enough in interest to make the 3% fee worthwhile. This will depend on the amount of money you owe and the interest rate you are currently paying.
Interest rates on credit cards can vary widely from around 5% to upwards of 20% depending on your credit score and a number of other factors. This will make a vast difference in determining whether a balance transfer makes sense in your situation or not.
Assume, for a moment, that you have a 5% interest rate. If you have a $1000 balance, that means that you are paying 5% annually on a $1000.00 balance. Although there is some variation on how creditors charge interest- some charge interest on a double month cycle- you will pay approximately $23.37 in interest over a 6 month period. This number was calculating assuming you are making minimum payments of 3% per month of the balance remaining. If you are making larger payments, you will pay less in interest. Over a one year period of time using the same calculations and assuming the same payment rate, you will pay $42.79 in interest over the course of the year. This means that if the balance transfer offer is good for six months, a balance transfer may not be right for you, since you will pay a $30.00 fee (3% of $1000) to save $23.37 in interest. However, if the balance transfer offer is good for one year, then a balance transfer will safe you about $12.00. While this is a savings, only you can decide whether that amount of money is worth the hassle of transferring a balance.
If your interest rate jumps to 15% on your credit card, the numbers look a bit different. Again assuming a $1000 balance and payments at 3% per month, you are now looking at $71.66 in interest over six months and $134.94 in interest over the course of a year. Assuming a 3% balance transfer fee of $30.00, the offer begins to look a bit more attractive.
If your credit card interest rate is 20%, with all other factors the same, you will pay $96.59 in interest over 6 months and $184.48 over one year. In this situation, a balance transfer begins to look as though it might make sense.
Therefore, it seems clear that the higher the interest rate, the wiser it is to do a 0% balance transfer. The same rule applies for high balances. If you had an $8000 balance on that same 20% card, over the course of a year you would pay $1475.89 in interest. This is quite a bit more then the $240 balance transfer fee you would pay.
Other Things to Consider about 0% Balance Transfer Credit Cards
One other major factor to consider when making the calculation of whether a 0% balance transfer credit cards make sense is whether you can actually pay the balance back within the promotional period. If you have, for example, an $8000 balance, you would need to make credit card payments of over $1330.00 per month in order to have that balance paid off within a six month promotional period. If you do not have that kind of cash lying around, you need to consider what happens when the promotional rate ends.
Typically, when a promotional rate ends, you will just have to begin paying at the regular interest rate on the remaining balance. Thus, you would need to look at what that standard interest rate was in order to determine how much you should expect to pay in interest on the remainder of the transferred balance after your promotion ends. You can do this by figuring out how much you can pay per month and subtracting that amount form the total owed. So, if you were able to pay $200 a month on your $8000 balance, at the end of six months you would still have $6800 remaining on your card. Find out what rate will be charged on that remaining balance. If the rate is higher then the rate you have now, it might not be advantageous for you to take the balance transfer offer unless you are absolutely confident that you can pay off the balance within the promotional period.
Be diligent about ensuring that you really can pay off the money within the promotional period. Do not be late on your payments or otherwise default on any agreement with the credit card company or you may find yourself spending much more money when your rate defaults to a penalty rate under the terms of the contract. Finally, do not count on simply being able to transfer the balance again at the end of your promotional rate. After the economic crisis of 2009, the days of easy credit and endless balance transfer offers are no more and there is no guarantee that at the end of your promotional term, another balance transfer offer will come along.
- Citi Platinum Select MasterCard – Official Application
- Discover More Card – Official Application
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A note about transfers between two cards issued by the same institution. In most cases, the institution will not approve a direct transfer between cards. The reason for this is obvious – it’s not in their best interest (pun intended) to allow you to shift debt to a lower interest card. They’re out money with little or no upside. I have seen literature from several card issuers explicitly prohibiting such a transfer.
If they issue paper checks to make the transfer, there is a way around it. Write the check out to yourself, and deposit it in your bank account. Once the check clears and the Card issuer OKs the transaction, pay off the old card via your bank account.
About 4 years ago I had 6 open cards, all with fairly high interest rates (16%-24%). Most of the cards were running a special “4% interest until paid off” balance transfer deal. I paid off the first card with savings, deposited the transfer check into my checking account. Waited a week, used the money to pay off the 2nd card, then deposited their transfer check into my account, paid of the 3rd card, etc..
After a 2 month round-robin of shifting balances, all my cards were locked into rates ranging from 2%-6% until paid down. It was nice seeing about 90% of my monthly payments actually go to pay down principle.
I got paper checks in the mail from Discover – offering 2.99% with a 5% fee – but reading the small print – I must put the account on the application initially and it could take 2 weeks for them to approve – no getting the money and following the process you followed – also in that 2 weeks they can change the rules if they want to – and have it be back up to 25% or more – I think the companies are now figuring out ways to make it impossible to get our interest rates reduced – that is why so many people have given up and filed for bankruptcy. Four years ago it was all different – the economy wasn’t in the condition it is in today.
Wonderful and current data, i love it! One thing i haven’t heard is : if you don’t have a great fico (580-600 ish) which is the reason for your (my) high interest rate cards 15-29.9%, is it foolish to apply for a 0 % card (or even a 15% card) as i probably will be denied and have an inquiry ,which will lower my fico even more?Any ideas about getting out of this trap? Thank you,Catch 22
I wrote to you before and thanks for the advice. I am still trying to figure out what to do. I just got an offer in the mail so I thought I would run it by you. It is from the First National Bank of Omaha. It has 0% APR on purchases until Jan 2011, a variable 14.99% APR based on the prime rate, no annual fee, and a 5.99% APR until paid in full on balance transfers. There is a balance transfer fee of 5% for each one made. Now I know with the 0% you can pay it off faster but the 5.99% looked pretty good because it is until the transfer is paid in full. I am currently not working due to health issues, so we are on a one income salary right now. What is the best thing to do? Do you think I would even be able to get a card, this one or the 0% one since I am not working? And once you transfer a balance, should you close the card or wait for them to close it due to no activity? Awhile ago, I was told to never close a card because it effects your credit score. Is that true?
Thank you for your time and your advice. It is appreciated.
Carey
The offer sounds solid, but I believe you should apply only if you have other debt that you want to transfer it to and be able to max it out immediately with transferring your existing debt. Otherwise, skip the card and cut your expenses instead, as the lure of having the added purchasing power is going to get your family to spend more.
I’m sorry to hear that you lost your job and though it’s probably no fault of your own, you have to deal with it by spending less. Don’t run up your card just because you can, as there are ALWAYS expenses to cut and ways to save more.
Be strong and you will be okay. If you are like most other people who just keep on spending anyway, then one day you will wonder why you have so much credit card debt.
To answer your question though, the credit card companies are unlikely to be able to see your employment picture unless they start asking for it on the application. So your job situation should have no effect on whether you get approved or not.
Also, canceling a card may negatively affect your credit score. This is true. But the effect will be based on how many other cards you have, how long you’ve had them for and what the credit limits of them is.
Hi Carey,
If you decide to utilize the Omaha 0% APR offer for balance transfers, be aware that they likely will require the 5% BT Fee be paid off in the first month.
In regards to the BT Fee on my offer, the terms said “there is no grace period for these transactions”, and Omaha explained that means the BT Fee must be paid off by the next due date. So say for a $5000.00 balance transfer, you’ll owe $250.00 for the BT Fee, in addition to any interest plus the minimum payment on the balance.
Since requiring repayment of the BT Fee in the first month is unusual from my experience, this came as a surprise, and I expect it will to most consumers who don’t know how to interpret the “no grace period” phrase. In my experience with credit cards, it usually has meant one cannot make late payments without incurring additional fees, and I’m sure that’s how I originally interpreted it.
Thanks for the info. I looked into it and it wasn’t as good of an offer that they advertised. Thanks for the fine print! I am just glad I went with Citibank instead. I made sure to read everything and came prepared with question’s. I think I made the right choice, at least I hope. Thanks again. I really appreciate the help.
hello curently i have 1 credit card with a balnce of $15,000 with an interst rate of 24.50% i recieved an offer by mail from AAA for 0% for 15months and 10.99% therafter for balance tranfers should i apply for this offer and why?
In a pure number standpoint, you should take advantage of it as long as you are saving. Since the 0% balance transfer is much less than 24.5% (even 10.99% is much less), you should take the offer and save yourself money.
Having said that, you need to seriously consider whether having the extra flexibility will make you spend more. Will applying for the card keep you from paying the balance off longer because you keep telling yourself that you aren’t paying interest on it? You’d be surprise but too many people spend more money just because they can and thus end up in a worst situation.
In this case, the numbers work but the psychology may not. That’s why it’s more a personal choice that only you can make.
Hi Money Ning,
I am hoping to apply for the ZERO INTEREST Balance Transfer for a longer repayment period, and here you mentioned Citibank offers up to 18 months?
But I called up Citibank yesterday, they said there is no Zero interest offer but 3.99% p.a. Then i googled and found your site. I tried clicking on the link provided here but it doesn’t work.
Would you know if the offers is still on?
regards,
Bed of Roses
I just applied for a Citibank card with 0% interest on balance transfers and purchases for 15 months. If you go to their website it lists all the cards they offer. They even have a program to use to see what is the right card for you. You can also compare rates. I had some questions, so I went into a branch and they were really helpful. I would check out the website or find a branch near you. Good luck!
Carey
The offers are still on, and the links work. You may have just caught a time when the sites were down. If you try again, it will lead you to the application where you can apply if you’d like.
Any advise on student loans? I heard that the rate is better if the loan is in the students name. He will need a big chunk. Have exhausted all other resources, so private is our next option, SallieMae, etc. Advise please.
I think what most people can tell you is only something general. The best thing is to shop around and find as many loans as possible (as many as you can handle without going insane of course) and compare them to see which one works best.
Students loans often have generous terms but it won’t be 0%.
Are there any 0% balance transfer cards that have no transfer fees right now?
Hi. I have a $14k balance @ 15.99%. My minimum payment is $277 ($177 finance charges + $100 principle). I always pay a little over the minimum payment and my credit score is good (btw 700-730). Would a balance transfer be a smart choice?
Just the fact that you don’t pay off your interest bearing loan will make these balance transfer credit cards worthwhile for the life of the balance transfer period. I suggest though that you save some money to pay it off once the 0% term expires because paying 10%+ is no way to get your finances together.
I have a heloc that is at about 9% right now. I have a balanced of almost $18000. I thought about transferring it to a zero card until that rate expires and then transferring it back if I do not have another offer. The transfer fee is 3% and I have been paying about $600 a month. Would this be a good idea?
Thanks,
Michelle
Yes, 9% is three times as much as 3%. Going to a 0% balance transfer credit card and keep paying $600 a month will help your debt as long as you are using the whole 12 months.
Hello,
I need to pay off a balance of $6K credit card, the annual interest is 19.99%. Bank of America is ofering me a 6.36% (v) with a tranfer fee of 4% and Priority One Credit Union is giving me a 3.99% for 6 months w/o tranfer fee and them 9.99% for the term of the money tranfer. Would a balance transfer to Bank of America be a smart choice?
Thank you in advance,
Islandman
Whether the Bank of America balance transfer offer is better than the credit union one will depend on how long it takes you to pay it off. I would rather take the credit union one unless you plan to take years to pay off your loan but like I said, it depends on how YOU plan to handle this debt.
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