A couple years ago, you could play the balance transfer arbitrage game over and over again. Apply for a credit card, get a 0% balance transfer, and then transfer that right into your 5% APY online savings account. Man, those were the days!

Now, balance transfer periods are shorter, transfer fees are higher, and, most insidious of all, the interest rates after the 0% promotion ends are higher. With the recent credit card laws, I’m betting those offers will become even less inviting. While this will take all those balance transfer arbitragers out of the game, they can still be effective tools for people looking to catch up on their credit card debt. A 0% interest rate, even for only a few months, can give you a little bit of breathing room so here’s how you should compare balance transfer offers.

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Gone are the days when you couldn’t walk to your mail box without a credit card offering 0% on balance transfers or 0% on purchases hitting you in the face (or one touting they had the best cash back credit card). With the recent credit crisis and all the bank failures, credit card issuers are holding onto their cards tighter and tighter. Despite the climate, there are still many 0% APR credit cards out there with attractive offers as long as you can find them and as long as you qualify. The credit requirements are higher than they once were but they are still reasonable as long as you have good credit. If you’re unsure about your credit, you can use one of the free credit score estimate tools to get a better idea of where you stand.

So, what makes a great 0% APR credit card and what justifies its inclusion on my lists?

• Brand name: I prefer working with brand name banks and issuers that I’ve heard of before. All of the cards I list are issued by banks that are publicly traded and well known in the banking community, if not the general population. For publicly traded companies, their reputation is crucial and that’s important to me. I need to know the company I work with will care about what I say about it. In addition to reputation, a larger brand name issuer often means I can get someone on the phone at anytime during the day. I don’t want to be calling some community bank and getting a voicemail box because it’s 5:01 PM. I have nothing against community banks, but I need to know I can get someone, even if they’re at a call center, when I have a problem at night.
• No annual fee: I never list a card that has an annual fee unless there is a very good reason for it. There is absolutely no reason why anyone should pay an annual fee to use a credit card, unless it offers a frequent flyer miles program, because the companies make so much money on the transaction fees it collects when you use the card.l
• 0% balance transfer for 12 months: Twelve month balance transfers are getting rarer and rarer but I think you have to get at least a year on your 0% APR transfer for it to be worth your while. Every time you apply for a new card, your credit score takes a hit. If you use 6 month offers, you double the number of applications you have to fill out just to get the same amount of credit.
• 0% on purchases for 12 months: Again, similar logic to the 0% balance transfer, though my love for 0% on purchases is fleeting. The only exception is the card that I profile as the best 0% on purchases card, it’s not for 12 months but it has a unique offer I’ve never seen before.

Below, I’ll list the card that I believe offers the best in class in terms of 0% APR balance transfers or 0% APR on purchases along with some “runners up,” with comparable offers.

Best 0% Balance Transfers Credit Card

When it comes to 0% balance transfers, the king nowadays has to be the Discover More card. All cards now require a balance transfer fee of 3% and the minimum fee on the Discover Card is $0, unlike other cards which have a minimum that’s much higher.

One word of warning about balance transfers, you must request a balance transfer and not a cash advance. Don’t fill out one of the checks they send you, that’s a cash advance. Cash advances do not have a 0% APR rate, they have the standard purchase rate plus the 3% cash advance fee (minimum of $5). Do not go to an ATM and withdraw money, that is also a cash advance. Call the credit card company and specifically request a balance transfer.

Runner-Up 0% APR on Balance Transfers Cards

• Discover Open Road Card – 0% balance transfer offer for 12 months and 0% on purchases for 6 months, 5% cash back on gas and auto maintenance purchases, no annual fee.
• Discover Monogram Card – 0% balance transfer offer for 12 months and 0% on purchases for 6 months, no annual fee.
• Citi Platinum Select Card – 0% APR for purchases and balance transfers (both up to 12 months). One nice thing about Citi cards is that they will send you a check directly, though the interest rates after the transfer expires aren’t as good; so it depends on your financial plan.

Best 0% Purchases Credit Card

The best 0% on purchases credit card right now is the Citi Platinum Select Card because it offers both a 0% on purchases and a 0% on balance transfers for twelve months, based on your credit history. There is no annual fee and it has all the features you’ve come to expect from a Citi card including online account access, 0% liability on unauthorized charges, travel accident insurance, and car rental insurance.

Runner-Up 0% APR on Purchases Cards

• Citi Platinum Select Card – 0% APR for purchases and balance transfers (both up to 12 months). Unfortunately you have to pick one, either purchases for 0% or balance transfers for 0% because after 12 months both expire.
• Blue from American Express – 0% balance on purchases for 12 months, Express Approval. Get a decision in less than 60 seconds., no annual fee.
• Blue Cash from American Express – 0% APR on Purchases for Up to 12 Months, No Annual Fee, plus 1% cash back on purchases

Not sure if you want a 0% balance transfer or a 0% on purchases offer? Get the Citi Platinum Select Card because it offers both – a 0% APR on balance transfers and purchases for up to 12 months plus 5% reward points at supermarkets, gas stations and drugstores for 12 months.

When I used to play the balance transfer arbitrage game a few years ago, no fee 0% balance transfers were plentiful. I had my pick of the litter and it usually was a Citi card because they would send the check directly to you. Nowadays, 0% balance transfers are still available but they have 3% balance transfer fees (sometimes capped, oftentimes not) making them good options for people with credit card debt but effectively killing the balance transfer arbitrage games (well, sagging interest rates on high yield savings accounts probably did that more than anything).

However, one place you might look to for a no fee 0% balance transfers is at your community bank. Reader Robert shared an experience he had with a local bank in Connecticut that was still offering 0% balance transfers on their credit cards.

Just thought I would let you know that I received and took advantage of a fifteen month, 0% balance transfer offer with NO fees. This was through a local bank here in Connecticut (Liberty Bank), underwritten by Elan Financial Services. I have not these types of offers for a long time and thought they were dead, but apparently not.

Oftentimes we always think to look for the best offers from national companies like Citi, Discover, Chase, and Bank of America; but the best offers may be in your own neighborhood.

(Photo: smiteme)

0% credit cards are all the rage these days and this list will help you identify the best deals out there. Consumer spending is down, fears of a recession are up, and retailers are scrambling to entice regular people like you and me to enter their stores and buy more stuff. One group of companies you’ll also find lining up to offer you special offers is the credit card industry.

Credit card companies don’t necessarily want you to go into debt to them, though that doesn’t hurt their bottom line. They want you to keep on spending because they earn money on processing transactions. If you review the annual statements of any credit card issuer, most of the income they derive from credit cards comes in the form of data processing and service fees. So, in order to keep spending up as long as possible, more and more are offering great offers such as 0% APY for 12 months on purchases and balance transfers.

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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.

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Hmmmm… according to an MSN Money article, Bruce of Virginia has $50k in credit card debt that has netted him thousands of dollars in interested because of 0% APR balance transfer credit card offers socked away into high yield savings accounts, taking advantage of something that personal finance bloggers have been writing about for years now. Now, it makes you kind of wonder about the whole 0% balance transfer arbitrage game now that it’s hit “mainstream” with articles in MSN Money, tipped off probably on Weston’s Your Money forums, but credit card companies still offer them, often times with no fees.

Only recently did Discover add a balance transfer fee to their transfers, likely because a lot of folks were targeting Discover before Citi, the other balance transfer target; and so you wonder if the free money will come to an end?

Personally, I think the balance transfer arbitrage game is too risky and not really worth the effort (do you really want to have $50k in credit card debt, even if you’re making money?) so I stopped after my first round of offers. However, if you really do want some extra spending money and I don’t mind the hassle, it’s definitely an easy way to make some extra scratch and the steps are pretty straightforward.

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?