The reports of the death of 0% APY balance transfers are greatly exaggerated.

Many years ago, no fee 0% balance transfers were a dime a dozen. It would be difficult to find a credit card that didn’t offer a no fee 0% balance transfer as the cheap and easy credit flowed like wine at a Great Dionysia Festival. You couldn’t open your mailbox because it was stuffed full with special promotional offers from all your good friends at the major credit card companies.

The fee-free frenzy gave way to new terms like app-o-rama and balance transfer arbitrage. People would go on credit card application binges so that they could get as many cards as possible (an App-o-rama) just to take advantage of the balance transfer offer. It was not unheard of for someone to get $30,000 (and that’s just a conservative figure) in balance transfers just to put it in a high yield savings account earning 4-5% APY (that’s the arbitrage).

Now, balance transfers with 0% APY promotional rates are still available but the fees have been re-introduced and the promotional periods are quickly slipping from 12 months to a mere six. The offer now is less attractive to those looking to arbitrage (bank interest rates are now in the 3-4% range, rather than the 5-6%, cutting the interest earned side of the equation as well) but they are still attractive to those paying double digit interest rates on their existing credit debts.

Good for Debt Recovery

I think the credit card companies re-instituted fees because they found an inordinate number of consumers using these offers to arbitrage rather than pay off existing debt. While they can never be sure how someone is using the transfer, I imagine their accounting departments are telling them that the percentage of people paying off the loan after the promotional period is higher than their projects… so something is amiss.

However, their only reaction is to stop their policy of waiving balance transfer fees. Citi has been the most aggressive in this group as many of their cards have a 3% fee and no limit on the transfer fee. Other companies like Discover and Chase will also have a 3% fee but cap the fee at a double digit amount such as $75 and $99, respectively. The cap is enough to dissuade all but the most hardcore balance transfer arbitragers but it makes the cards good candidates for people looking to actually transfer debt.

Watch Out For…

Whenever you take on debt, there are always things you need to be aware of. After years of blogging, watching these offers, participating in arbitrage myself, and reading trade publications like Cards and Payments, I learned that you can get in trouble if you’re not careful.

It will affect your credit history and score. Every time you apply for a card, it’s recorded on your credit history and your score may be negatively affected. Every time you are approved for a card, it’s recorded and your score can be negatively affected. One thing to be very cognizant of is the long term effects of balance transfers (and any credit activity). It doesn’t make much sense to take on new credit card if you’re a couple months away from buying a home. The savings you’d get on the transfer will look like a drop of water in an Olympic-sized pool when compared to your mortgage loan.

Balance Transfer, not Cash Advance: It is very important that you request a balance transfer rather than a cash advance or otherwise ask for a “check.” The confusion comes from when you request it. I’ve known someone to request a “check for their credit limit,” which the CSR conveniently understood to mean that he wanted a cash advance rather than a balance transfer, which is what he actually wanted. Balance transfers often come by way of check, I know Citi does this, so you can see why there was confusion. Unfortunately, cash advances aren’t billed the same as balance transfers. Often times the cash advance doesn’t have the 0% APR promotional rate and the fee structure might be different. One one card I saw, there was a cap of $75 on the fee for a balance transfer but no maximum for cash advances. Be very specific when you make your request to say balance transfer.

Balance transfer fees: The best deals in balance transfers are those that have no fee whatsoever. Those types of no fee 0% balance transfer offers were abundant a year or two ago but are nearly impossible to find now. The next best thing is to find a card that will charge a percentage based fee but cap the maximum they will charge. Many Discover cards have a 3% fee with a $75 cap. If you transfer a balance greater than $2,500, the percentage will be lower than 3% because of that cap. If you transfer $5,000, the fee is now only 1.5% of the balance.

Post-0% APY interest rates: If you’re using balance transfers to combat debt, be very aware of the post-promotion interest rate you’ll be charged. You can often read this off the “important fee, APY and promotion” terms & conditions sheets for each card. What you’ll want to look in the rates section and they will often explain where the rate will go. Many cards will have the balance transfer interest rate increase to the standard APR for purchases, which is often pegged to the WSJ Prime Rate + some percentage.

Default Rules: Defaulting generally refers to when you fail to make a required payment on your credit card. If you “default,” then the credit card company often increases the interest rate on your debt to the Default Rate (also listed on those rate & fee T&Cs), which can be extremely bad. There are also several other events that can trigger a default other than non-payment. In the case of Discover, some cards have a clause that warn a default could be triggered if you exceed your account credit limit twice. The default rate on most cards is a staggering 23.99% - 28.99%, so knowing the rules is absolutely crucial.

A few years ago, some companies began enforcing a concept known as Universal Default, where defaulting on any other loan or payment resulted in defaulting on that card, though that’s slowly been abolished. Check your T&Cs to ensure the card doesn’t have that policy.

Always Be Diligent

The number one rule of working with credit cards is that they require diligence and lots of reading. Every card has its own set of rules, terms and conditions; be sure to review them and make sure you understand everything you’re agreeing to. You can take a few days to review an offer before applying, it’s much easier to change your mind before you’ve sent off your information.

I hope you found this guide informative!

All photos taken by thetruthabout.

Credit card companies have three objectives in mind: Sign you up, don’t let you quit, and keep you spending. They make money whenever you spend and, in fact, they can make a ton of money if you never pay a fee, are never late, and never pay interest because they take a little cut off the top of each transaction. All the other fees and interest, that stuff is just gravy to them. So, when it comes to those three objectives, those credit card companies will employ all sorts of tactics to get you in, keep you in, and keep you spending (sounds like casinos doesn’t it!?) so keep on reading to see what I think is the best way to combat these tactics.

Get You In: Small Dollar Incentives for Signing Up
Back when I was in college, I used to sign up for credit cards all the time to get stupid t-shirts or Pittsburgh Pirates hats and blankets; all sorts of incentives that were less than $20 in value. When it costs a credit card company nearly $200 to acquire a new card holder, $20 seems like a steal! In fact, to prove that it costs that much to get a new card holder, check out the expired $250 promotion from the Chase Freedom card and the currently active $250 promotion from American Express; if it didn’t cost a lot to get cardholders, you wouldn’t see those types of promotions (or as many balance transfer offers)!
Solution: Only sign up to a card where you get a tangible benefit of at least $50-$100 dollars, whether it’s a balance transfer, a juicy cash back offer, or a free gift card with your first purchase; don’t sign up for a card that gives you nothing or some marginal gift. If you really want the hat, get the tangible benefit of $50-$100 and then buy the $12 hat.

Get You In: 0% Offers
There are two ways a company can mess with you when it comes to 0% offers:

• 4a. Balance Transfers with Fees - I have a page that lists a lot of 0% balance transfers and it’s a great resource if you are trying to make a 0% balance transfer arbitrage play or if you just want to get a little breathing room from your credit card debt. The problem is that all of that you take a big hit if you go for cards on that list that have a fee, some which are as high as 3% with no maximum fee cap. While it’s great if you’re dealing with a card with a 30% interest rate, it’s something you might miss if you’re trying to arbitrage or comparing offers.
• 4b. APR After Balance Transfer Expires - Why does a company want to give you a 0% balance transfer when they know full well they’re not making money off you for at least the promotional period (assuming you don’t miss a payment)? It’s because their interest rate APR could be really high after the promotion expires. If you’re doing the arbitrage thing, this won’t matter so much; if you’re looking for an interest breather, this is something you have to check before you pull the trigger.

Solution: Always check the fees on balance transfers and always check the APR after the promotion ends, even if you think you won’t be around (a percentage of you will be) that long.

Get You In and Keep You Spending: Pump Up Your Ego
You are what you swipe and those of you who carry a Gold/Platinum/Black/Plutonium credit card are the cream of the crop! In fact, if you don’t carry a Gold/Platinum/Black/Plutonium card, then you actually don’t matter at all because you simply aren’t cool enough or smart enough or rich enough or good looking enough. Everyone who carries the Plutonium card is a somebody and everyone who doesn’t… eh, who cares, they’re nobodies. Oh, and to carry the Plutonium card you have to spend $500,000 a year and pay a small foreign car as an annual fee - but if you’re big pimpin’ then that won’t be a big deal.
Solution: Ditch the hype, it’s ridiculous don’t you think? Seriously, a plutonium card!?

Keep You Spending: Spending Contests and Promotions
Discover ran a recent promotion where they would give you $20 for every $200 you spent at the Simon Malls, a promotion that probably spurred people to spend spend spend in order to get essentially 10% cash back (that was a smart way for consumers to take advantage, honestly); but think of how many promotions out there give you a “chance at a million dollars” each time you swipe their credit card? The Discover promotion = good promotion for everyone, The “Chance At A Million” = good promotion for credit cards.
Solution: Don’t buy the hype, get the tangible benefit when you can like in the case of the Discover promotion, skip the contest and the promotions where you might get something or you might get nothing. The credit card companies control those promotions and they know the probabilities, you are always on the losing end.

Get You In and Keep You Spending: Co-Branded Cards
Do you love the New York Jets? What about the Ohio State Buckeyes? How about the Penn State Nittany Lions? What if I told you that you could get a credit card with your school or team’s logo and name printed right on the card? When you use the card, you’re supporting your alma mater! When you use the card, you’ll also be giving up as much as 5% cash back since all of those cards usually come with no cash back offer whatsoever! Are you showing support for your favorite school or your favorite credit card company!
Solution: It’s just a credit card and it’s all about money, there are plenty of ways to show your support for a team or school outside of getting a credit card with a picture on it. Donate a bit of that cash back you’ll be getting and that’ll be more than what the school gets for pimping themselves out on a credit card.

Keeping You In: Phone Menus
Ever call up a company and wanted to stab yourself after entering phone menu tree hell? Yeah, me too. In the constant war of attrition, forcing you to deal with the ridiculous phone menu tree is just one way of breaking down your will to fight and one that works surprisingly well - unless you bypass the tree all together.
Solution: Repeatedly pound lightly tap 0 or just ignore all the messages and eventually you’ll get passed through to a human being. Whereas some companies will drop the call, credit card companies will almost never drop the call if they don’t know what’s going on.

Get and Keep You In and Keep You Spending: Reward Points
What if I told you that for every hundred dollars you spent, I’d give you one point? You’d probably say, sure, that sounds like 1%. Now what if I told you that for every hundred dollars you spent, I’d give you one million bazillion trillion points? Wow, that’s a lot more points right? Yeah, unless it takes a billion points to get a Diet Coke coffee mug. It’s easy to compare cash back offers because it’s straight cash, it’s much harder to compare the catalogs of different reward programs because they often don’t have the same things in them. The companies do this so that it’s harder to compare programs, they get to give a little less than 1% rewards, and they hope that you won’t notice.
Solution: Either always go for the cash or try to find something you’ll want and do the math yourself. Let’s say you get 1 point for each $100 you spend and you want something that is worth $100 and costs 200 points; you’re looking at 0.5% cash back. In reality, you could get a 1% cash back card and use the money you get back to buy the reward you want and come out ahead.

Do you know of any particularly insidious tactics used by credit cards that I may have missed?

I received a notice in the mail yesterday from Citi stating that they would start charging balance transfer fees of 3% with no maximum ($5 minimum) starting April 3rd. Some Fatwalleters have reported getting these as well. The notice itself stated that this would be effective on the cards I already have so there’s no information as to whether no fee 0% balance transfers (and thus the balance transfer arbitraging that many people are now doing) is coming to an end but it’s certainly an ominous notice to be getting in the mail.

So, if you’ve thought about doing the balance transfer arbitrage thing, I’d get on it because the opportunity might be slipping on these. Here’s a quick hitlist of posts I’ve done on balance transfer arbitrage:

• List of cards with 0% balance transfer offers - segmented by fees (no transfer fee cards listed first), potential bonuses, and promotional period.
• My 0% balance transfer arbitrage experiences - discusses my first foray into the whole game.
• Citi Balance Transfer Request Walkthrough - is a helpful article detailing the handful of steps needed to get a Citi balance transfer check mailed to you.
• Potential risks in doing 0% balance transfer arbitrage - It would be remiss in not posting a DA post arguing against getting a 0% BT.

A lot of times we put something off because we think it will take a long time and be a lot of hassle and a lot of times those things happen to deal with money. Well, if you have ten minutes, you have enough time to do one of the things on this list that could change your life financially for the better (and ten minutes is a conservative estimate, you could finish most less). In less then 15 minutes, Jack Bauer can escape from the grasp of terrorists by biting into a man’s jugular, I’m just asking for ten and for you to check your credit report (#1) - sounds fair right?

1. Request Your Credit Report - If Congress can spend countless hours (and millions of taxpayer dollars) in debate to pass a law that gives consumers free credit credit reports each year (one from each of the three credit bureaus), the least you could do is spend the fifteen minutes it takes to request and scan over your report. Get your free credit report from the only officially sanctioned website - AnnualCreditReport.com. You could find a mistake that could cost you thousands of dollars in added interest or higher fees down the road. The request itself takes no more than ten minutes so request and print now, review later.
2. Open A Roth IRA - I wrote a post about opening up a Roth IRA that details every step and the financial impact of doing so. If you want this to truly be a 15 minute move, put the contribution into a Target Retirement/Lifecycle fund and let the brokerage worry about re-balancing it for you.
3. Participate in your 401K - It wasn’t until recently that folks were automatically enrolled into their company’s 401K plan by default so if you aren’t yet participating, do so and make enough of a contribution to get the maximum employer match. All it takes is a call to your HR department to make it happen - you wouldn’t pass on a twenty dollar bill sitting on the sidewalk, don’t pass it now.
4. Open a High Yield Savings Account - The typical savings account gives a piddly 1%, get five times that by opening a savings account at any number of FDIC insured online banks like ING Direct, Emigrant Direct, HSBC, Citi, the list goes on and on. As long as they’re FDIC insured (all those listed are), you don’t have to worry. Get the yield of a CD with the flexibility of a savings account.
5. Split Your Paycheck - Out of sight, out of mind. Have 10% of your paycheck deposited into that high yield savings account and think of it as an “automatic” savings (in the sense that this is one of the ideas from the Automatic Millionaire - set it and forget it Ronco style) and you’ll never know the difference.
6. Use 0% Balance Transfers - Use a 0% balance transfer (list of 0% bt cards) to pay off an existing credit card balance, it takes only a few minutes to apply for a card and a few minutes to do the transfer (I’ve found Citi has the easiest balance transfer process). The little brother to this tip is to just call up your credit card and asking them to lower your interest rate, saying that you could always just try a 0% balance transfer and leave them. Between 0% balance transfers and asking, Tricia from Blogging Away Debt went from $400/mo in interest to a mere $100 - that’s $300 that can go towards principal.

Don’t read anymore, go do!

I usually save Devil’s Advocate posts for more big time personal finance advice but with the recent spat of 0% balance arbitrage posts (of which I’ve wrote several), I felt that I should write a post arguing the potentials risks of 0% balance transfer arbitraging because you don’t see many of these out there. For those who aren’t familiar with the practice, basically you apply for a bunch of credit cards with 0% balance transfer offers, request a balance transfer check, and deposit it in a high yield savings account - pocketing the interest.

Here are some reasons why you shouldn’t do 0% balance transfers:

Universal Default = Death
Universal default is the keywords you should look for in your credit card agreement (don’t bother looking, I guarantee its in there) and what it means is that if you miss a payment, any payment on any account, you could see your 0% balance transfer offer interest rate spike up to rates as high as 30%. So if you miss a cell phone payment or a water bill payment or anything anywhere, you could see your 0% rate disappear.

Oh, and if your card does two cycle billing, you could get creamed the last two months as your 0% balance disappears but the “two cycle” math keeps it on the books. It’s a ridiculous thing but it does happen. No one has ever complained of this, I don’t have a card with two-cycle billing, so I’m not 100% sure this is true but it should be.

Your Credit Score Will Plummet
When you apply for credit cards, the bank will do a hard pull inquiry of your credit history to assess your credit worthiness. As you accumulate more and more of these inquiries, your credit score will fall lower and lower. As you request balance transfers from these new lines of credit, your credit utilization will increase tremendously and your credit score will fall lower and lower. Plus, when you pay off these debts, your credit score isn’t going to recover immediately - it takes a little while before you get back to normal. So, if you’re planning on any big purchases, this drop in your credit score will likely result in loans with a higher interest rate that will make your interest earnings look meaningless.

The Payoff Is Miniscule
Let’s say you get $10,000 in debt at 0%, you put it in a 5% high yield bank account, that means at the end of the year you’ll get about $500 for your trouble. Now, take out a fat chunk for taxes and you’re really talking about very very little (at 25%, you only keep $375, or $31.25 per month). Is that really worth all the trouble of setting up an automatic bill pay (or paying it manually) every month, double checking when the offer expires so you pay it off, and then sending a big payment?

Anyone else have any good reasons why you shouldn’t be doing 0% balance transfers just to make a few extra bucks?

After taking out three 0% financing balance transfers last year and dealing with the hassles of them, I told myself that all the work wasn’t really worth it and that I wouldn’t apply for any more cards for the purposes of balance transfers. I am happy to report that I have not applied to any more credit cards and that this time the balance transfer offer sort of fell into my lap. I wrote on Monday about how you shouldn’t cancel your old credit cards because you never know when you’ll see something nice, like a balance transfer offer for no reason, and yesterday I initiated a new balance transfer off the Citi Platinum Select MasterCard.

The major downside to applying for a new card and requesting a balance transfer is that it will have a significant negative impact on your credit score. Since your credit utilization will increase and you’ll have yet another credit inquiry, it’s guaranteed your score will fall. This isn’t a concern if you aren’t planning on going after a mortgage or other large loan but I really didn’t want yet another item on my credit history so this particular scenario is perfect. I can get a balance transfer without another credit inquiry, so in essence it’s “free.”

Now, if you happen to find one of these free balance transfers, you should request a credit line increase before the transfer. On a typical arbitrage play, the card is brand new so the credit card company won’t increase your credit line limit but if it’s an “old” card, you won’t have this problem. Request the increase so you can put more onto the transfer! Sometimes you’ll get an automatic offer of an increase of a thousand dollars or so, just take that and make the transfer. Those offers usually require no credit inquiry and so they are perfect, if they don’t offer you that and instead require you to fill out a large form, just skip it. Since you’re taking advantage of the “free” nature of the offer, you don’t want a credit inquiry muddying it up.

Good luck!

If you’re a 0% balance transfer arbitrager, you probably have a couple credit cards siting in your desk drawer collecting dust because you weren’t sure whether you should cancel them after the balance transfer promotion period. Not canceling them certainly helps your credit score (lower credit utilization, longer credit history) but the downside of that was that you couldn’t reapply for those cards a few months later and take advantage of another balance transfer - or so I thought.

I was poking around the balance transfer offers of my Citi cards when I discovered that my Citi Platinum Select Mastercard, the one that dropped the cash back benefit on gas stations, supermarkets, and drugstores from 5% to 2%, listed a 12 month balance transfer offer at 0% with absolutely no fees! I had kept the card, using it only when shopping for groceries, and I’m glad that I did because this means I can get a free 0% balance transfer (i.e. no credit check). Does this mean that you should keep old cards around in the event they decide to offer you a fat balance transfer? My only expired balance transfer arbitrage play was on my Citi mtvU card which I’ve kept because it offers a nice 5% at restaurants and bookstores, but I’ve looked a couple times and haven’t seen any nice offers in there. Anyone else find a resurrected offer?

I had a reader send me the following email:

Hi Jim, I just got the Citi mtvU card hoping to get a good balance transfer to pay off something else but they only gave me a $3,000 limit, less than what I was hoping for. What should I do?

Unfortunately, you made the mistake of trying to do a balance transfer with a credit card designed for students. Since it’s designed for students, I wouldn’t expect them to give you a high limit no matter what your income was. In the future, I’d recommend something more mainstream like a Citi Professional (though not that one because the balance transfer is only for 9 months) or perhaps a Discover Card.

Anyway, the only thing I can really suggest is that you take the balance transfer for $3k since you’ve already taken the hit to your credit score (if it’s your only credit application in a while, I wouldn’t worry too much). If you just toss the card, you take the hit and you don’t get the cheap credit.

Now, one thing you can try to do, depending on how long the offer is good for, is to use the card as usual and then request for a credit line increase after six months (most companies won’t consider an increase until six months). So, if the offer is valid for more than 6 months, you can try that route to get more money. The downside to that is that you’re still paying that higher interest debt for that time period, so it may not be worth it.

Anyone else have any suggestions?

To date I’ve opened up four credit card accounts for the purposes of making money with 0% balance transfers and with the mtvU card’s 0% balance transfer offer ending for me in a month (it’s 6 months as opposed to 12), I’ve been looking around for another opportunity. Well, for those of you who have businesses (you all have sole proprietorship if you’ve ever had a garage sale, listed something on eBay, or sold tickets to a baseball game you couldn’t go to), here’s another offer you can’t refuse.

CitiBusiness Card with ThankYou Network - $100 worth of Thank You Rewards after $250 in purchases. If a $100 gift card wasn’t enough, you also can get a 0% balance transfer offer for 12 months. No annual fee.

A few weeks ago I wrote about the demise of the AT&T Universal Cash credit card (which was administered by Citi), the gas station, supermarket, and drugstore superstar credit card in my wallet, and the need to find a suitable replacement as soon as possible. With the card being terminated on 6/30/06, I’ve found a replacement and it’s the well-known Citi Platinum Select MasterCard which features the same generous 5% cash back at gas stations, supermarkets, and drugstores with 1% everywhere else. If you visit the link above you’ll also see a 0% balance transfer offer for up to 12 months (and a $5 cash back teaser for each $1,500+ transfer you initiate).

Just like the AT&T Universal Cash card, you’re limited to $300 a year in bonuses ($6000 in gas and groceries per year), and you can only request checks over $50. In effect, I’m swapping my A&T Universal Cash card for a Citi Dividend Platinum Select card.

I applied online and within a minute I was accepted, wahoo!, now I have to resist the temptation to turn it into yet another balance transfer arbitrage…