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Zero Percent Balance Transfers May Be Too Good To Be True

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Americans are strangled with credit card debt. If you’re the average household, you have a balance of $15,800 at an average APR of 14.89%. That’s $2,352 in interest payments annually. What could you do with that extra money?

There’s a way to avoid paying those interest payments at least for a short period of time now that banks are forgetting about the recent credit crisis and once again deluging our mailboxes with credit card offers with 0% interest on balance transfers. Some of these too good to be true offers give you 6 months or even a year without interest payments. That’s a lot of money that you’re saving that could go towards the payment of that interest.

Not so fast! One of the many statements that we attribute to wise people from generations past is, (say it with me) “if it’s too good to be true, it probably is.” Before you sign up, you better keep reading.

You May Not Get 0%

Have you noticed that on those weight loss commercials they always say “lose UP TO”? The “up to” is in small print while the big number that will make you the size you were in junior high school is big and colorful. Balance transfers are the same way. The best case interest rate is 0% but if you have blemishes on your credit report, don’t expect to get that 0%.

The Transfer isn’t Free

If it’s a bank, they know how to charge you fees and often, there’s a 3%-4% fee for balance transfers. That makes your $15,800 balance transfer $474 less valuable.

New Purchases?

Any new purchase you make probably isn’t going to hold a 0% interest rate for the introductory period. It will build interest at the standard rate that kicks in after the 0% period.

Speaking of the Interest Rate

Before signing up, don’t forget to check the interest rate after the initial 0% period. It may be much higher than what you have now.

Don’t Be Optimistic

Probably the most common form of rationalization related to balance transfers is the, “I’m going to pay the card off before the introductory rate expires” line. Just like many New Year’s resolutions, there’s a better than average chance that you won’t. If it were that easy, you could have paid a lot more before you transferred the card. Don’t make decisions based on this idea.

Close the Old One?

The credit bureaus know the trick. They can spot credit card hoppers a mile away. Understand that cancelling the old card may negatively affect your credit score and trying to transfer your balance from card to card every 6 months comes with possible credit consequences as well.

Is it a Good Idea?

If you were somehow absolutely sure that you could pay the full balance within the 0% period and you were transferring the balance one time, a multi thousand dollar savings is definitely worth it but never transfer to a card that has a higher interest rate than the card you have now.

Remember that trying to beat the banks at their own game will often leave you on the losing end. Focus on spending less and paying down the debt instead of moving it every six months.

{ 12 comments, please add your thoughts now! }

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12 Responses to “Zero Percent Balance Transfers May Be Too Good To Be True”

  1. mikestreb says:

    I have used a few of these transfers in the past. Back before everything hit the fan, I used to get great balance transfer offers all the time from Chase. The couple that I jumped on were 1.99% for the LIFE OF THE BALANCE with a 1% fee. I forget what I used this for, but I know it saved me a ton of money. I used another one at 2.99% for the LIFE OF THE BALANCE with a 1% fee to pay off my $20,000 car note that was at 7%ish, which saved me a ton of money too.

    You have to be careful though. With the two that I did on two different Chase Cards, I had a zero balance on them before the transfer and this was my only balance after. After I did the transfers, I didn’t use the card again until the transfers were paid off. I wasn’t sure how they would apply payments if I still used the cards so I didn’t give them a chance to apply the payment to the 2% balance while the purchases were being charged 15+% interest.

    Another bad, is I am still technically paying on my car loan for a truck I sold almost 2 years ago. In reality, I used the money from the sale of the truck to buy pay down some notes that were around 5%. Why pay off a 2% note when you could pay off a 5+% note.

    And another bad… Since they are on credit cards, it makes your credit card utilization look incredibly high which is bad for your credit score. Having a $20,000 car loan doesn’t look terrible on your credit report, but having a credit card with a $20,000 balance with a credit limit of $20,500 (97.5% utilization) looks terrible and your credit score will reflect it’s displeasure.

    • mikestreb says:

      Forgot to add this… I haven’t seen a balance transfer offer anything for the life of the balance in 4 years. All of the offers I get now are 0% for 12 months or 2.99% for 18 months. I think they ‘life of the balance’ offers are gone for good!

  2. Suzanne says:

    My way of judging whether to move money has always been how much does it cost to move it and how long does the interest rate stay in place. The last time my husband and I took advantage of an offer what for 2.99% until the balance was PAID IN FULL. We haven’t had one of those in years just like Mike above!

  3. Jenny says:

    My husband and I had a 0% balance transfer with a 1% fee on a card we have. We just transferred all of our credit card debt onto this card. We are able to make 12 payments to pay it off so we know we’ll make the cut off. We’ve paid an equal amount in debt payments over the last 12 months so it entails no change on our part. My husband figured out that we’d save about $2000-$3000 in interest by doing this. (We transferred almost $17,000)

    We don’t use the card for anything else, and the existing interest rate is reasonable. We are so close to paying off our debt!

    I think if you’re careful this can still work out for you.

  4. Wilma says:

    Have been playing the 0% interest game for years. As long as you’re NEVER late and you don’t go nuts on purchases, it’s an awesome way to get that washer or TV or whatever you need at the moment and pay it off. I still get 18 to 24 month 0% offers.

    I ran into some emergencies that I had no choice but to break out the cards. I put everything on one card and transfered it to the 0% card. That small fee for the transfer was still less than I’d have paid on interest for a year on the first card. Keep your credit in good standing and this is a good option. You can call the company to ask if you’ll be accepted at 0% before you commit. Just like all things money, you must be vigilant.

  5. kaylissa says:

    YIKES! If I owed 15,800 on credit cards, I’d need major prescription drugs to sleep at night.

    Absolutely NO credit or other consumer debt for me and just 6 years to go on the mortgage.

    For whomever this works, good luck and be careful to keep things in line.

  6. daenyll says:

    I used a 0% transfer check to take a small chunk out of a student loan. The transfer fee was still cheaper than the interest on the loan and I’ve already saved up to pay it off when the time limit expires on the offer. This let me focus that interest savings to advancing even more on the loan payoff.

  7. jmarie says:

    I have helped a friend transfer credit card debt onto a 0% card a few years ago, but I’ve never done it myself. I’ve noticed the changes mentioned above on the new offers.

    I do like to do what Wilma above does… use the credit cards from Best Buy and other places that are 0% interest for 18 to 24 months. My laptop was paid for over 18 months this way. It’s great. But even then you need to be careful. If you miss a payment you can end up paying the interest after all. They usually give you one mistake. I set up online payment and have 3 reminders to make sure to check it goes through. You have to stay on top of it.

  8. Sun says:

    Remember your balance transfer fee needs to be divided by the number of months you get 0% apr. If your bt fee is three percent and your intro apr is for six months, your comparable apr would be 6%.

    To avoid bt fee, you could make 0% purchases on it while you make payments on the other card. Depending on whether you carry a balance or not and your apr on the other card, you could come out ahead. You have to be mindful your total debt is being reduced each month.


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