0% Balance Transfer Credit Card Strategy
In a debt poll on this site a few weeks ago, one-third of 20somethingfinance readers indicated that they were struggling to pay off credit card debt (the second highest selection behind student loans). However, unlike low-interest student loans, paying off credit card debt should not be done passively. With interest rates in the teens and above, credit card debt snowballs even if you are taking decent jabs at it on a monthly basis.
You need to attack that debt with fury. Attack it like Kobayashi attacks hot dogs. And one of the first steps to doing so is to stop the bleeding. If used the right way, a 0% balance transfer APR credit card may be a first step. But they are a slippery slope that you must tread carefully.
Balance Transfer Precautions
In order to play the balance transfer game without getting burned, you first need to take a few steps to ensure you’re not getting into further trouble. If you can’t complete the following steps, balance transfers are not for you:
- Cut up your old card, and new card. You haven’t used credit cards wisely before, why would you start now?
- Compare 0% APR balance transfer credit cards. Here is a complete list. Make sure that you read all of the fine print in the terms and conditions. Most cards charge a balance transfer fee, which could be a significant cost (but ideally less than you’d be paying if you kept the balance with your old card). It used to be that many card offers included zero balance transfer fees. Now they are almost impossible to find.
- Proponents of this strategy recommend keeping your old card open and not using it after you make the switch, so as to not hurt your credit score.
- Pay off your balance, once transferred, crazy fast. Always pay it off before your APR goes to the normal rate, or you could owe retroactive fees, and may ultimately be paying more in interest in fees than if you had not done the balance transfer at all.
Again, read the fine print and run a cost benefit analysis to make sure that you are coming out ahead if you do a balance transfer. Only use this strategy if you are determined to pay off all of your credit card debt within the introductory 0% APR offer.
Here is a complete list of 0% APR balance transfer cards.
Balance Transfer Discussion:
Have you use a 0% APR balance transfer credit card or a similar strategy to attack credit card debt? Tell us about your strategy.
I did this a few years ago when you could get 0% with no fees. I had around 3800 on a credit card and focused on putting at least a cpl hundred on it every month. When the 12mo term came up, I got another card (this one had a 3% charge on the transfer amnt). I ended up paying if off, interest free, w/ the exception of that 3% charge.
I’m down to 1 cc now, only used for emergency situations.. and the full balance is paid off that month as to avoid the fees.
Correct.. we shouldn’t cancel the cards, just snip them up. Repeatedly signing up/canceling cards will hurt the credit score. It actually helps it by keeping it open, even with a 0 balance.. at least I think I read that some where b4. :)
If I had credit card debt, this is the way I’d take care of it. I’m also a big fan of the Discover More credit card anyway, so it would work out pretty well.
I have used this method, but instead of using it to pay off credit card debt I used it to pay off a motorcycle. I purchased a motorcycle a few years back, which because it was a recreational vehicle, had very high interests rates to finance. I used a “convenience check” from an existing credit card that had no balance and was able to transfer the entire motorcycle purchase onto the credit card. The credit card I used actually had two options, 0% interest for 12 months or 3.99% interest for the life of the balance transfer.
Since the balance of my motorcycle was over $6,000, I chose the 3.99% interest rate and reduced my rate by about 20%. At the time, before the credit crunch, the fee had a cap of $150. I saved myself a bunch of money and have since paid off the bike, earlier than my original loan term.
I recommend this tactic now more than ever. When I did it, I had to make sure not to use the credit card or risk all payments being applied to the balance transfer (at the lower rate) until it was applied to the higher purchase interest rate. [now that payment application strategy has been banned by Congress]
How does a balance transfer work? Does the credit card company send you a check for the amount that you specify you need in order to pay off your other cards and put that amount owed to back to them on your newly opened card? Or do they actually work with the other credit card companies directly and not trust you effectively saying “I need $x amount to pay off my cards, please send a check”?
@Joseph, I believe you’re right about keeping old accounts with zero balance active. They improve your unused/used credit ratio and thus your credit score if you owe money. Cutting them up or storing them safely rather than canceling them is a good idea.
I am wanting to make a transfer using the same card I want to reduce. They are offering a 0% rate for 12 months. My balance is 5k with a high rate. Can I simply get a transfer of 5k to my bank account and then send a payment to that very same card with the 5k in my bank account?? They do say I cannot transfer to the same account, but how can they tell me who I can/cannot pay??
If I had credit card debt, this is the way I’d take care of it. I’m also a big fan of the Discover More credit card anyway, so it would work out pretty well…
About point 3 of your balance transfer precautions.
“Proponents of this strategy recommend keeping your old card open and not using it after you make the switch, so as to not hurt your credit score.”
Closing your old card voluntarily should not adversely affect your credit score if you have a good history with them.
@ Money Saving – Ave account age is taken into consideration with your credit score. If you close a card, it is no longer getting ‘older’. Additionally, if your total credit utilization rate goes up, it could hurt your score as well.
I am of the few 30 million from Canada. I use RBC petropoints 0% and MBNA 0%. They charge 1% of your transfer so for my wedding, I borrowed $7000 and have to pay it back by Sept 2012.
That means in interest if I pay it all back, I only spend $70.
With RBC, I’ve written several convenience cheques at no charge. I still have $8000 owing on the card but at only %0.99.
I’ve taken a second job to try to pay off this wedding but I’ve taken it as a given that I can slowly make just enough to pay off the 20 k debt… 2 years of working 9 – 3 pm then 5-9 pm.
Asking questions are really fastidious thing if you are not understanding something
completely, however this paragraph gives good understanding yet.
Tax law about businesses in the USA is ever changing.
Platforms: Android, Blackberry, i – Phone, i – Pad,
Windows Phone. Two: Increase in income – When you are able to increase your traffic to the business, you
will easily be able to also increase your income.
Yet, there are grants that are made for equipment and training.
Platforms: Android, Blackberry, i – Phone, i – Pad, Windows Phone.
Before you do this, examine the publication online to ensure that its website is user friendly.
However, it states in the balance transfer offer that “interest starts on the day of transaction”. Does the “interest” in that sentence belong to the promotional 0% APR or my regular 15% APR? In other words, if I don’t pay the balance in full before 12 months is over, do I instantly get charged 15% interest for all previous 12 months? Or is the interest going to start after the 12 month promotional period is over?