Using 0% Balance Transfers to Pay Off Debt
Popular no fee 12 month 0% balance transfer cards:
Discover Business - $100 cashback bonus
- Citi Diamond Preferred Rewards - $50 gift card
- Citi Professional Card - 9 mo. only but $100 gift card
- List of 37 0% Rates on Balance Transfers for 12 Months
You hear a lot about 0% balance transfer arbitrage plays (where you get a 0% balance transfer for X months and put it in a high yield savings accounts like Emigrant Direct) but you usually don’t see many people recommending you use the 0% balance transfer to pay off anything except other credit cards. Money is money and you can pay off anything with the money from the transfer because you can have them send you a check. So why not use it to pay off things like mortgages or car loans?
I started thinking about this because LAMoneyGuy has an outstanding car loan and a fat ING bank balance and only recently decided to do anything about it. He’s going to get a balance transfer, pay off the loan, and then pay off the balance transfer when it comes due. His situation has no risk because he already has the money in his account. When the transfer reverts back to the 23094820934% it usually is, he can pay it off with the funds that already sit in his account. While it superficially appears that he’s paying off the loan with a 0% BT, it’s only psychological because his situation is no different had he paid off the loan and started playing the arbitrage game.
The reason why people don’t recommend paying off a “safe” loan like a car or mortgage with a “dangerous” loan from 0% balance transfer is because you can’t see into the future. You have 9 or 12 months but what if that time comes and you realize you can’t pay off the extra $2,000 of your balance? Then the rate gets jacked up and you get screwed until you can pay. No one can tell the future and it would be dangerous if you lost your job, was in an accident, or suffered other unforeseen hardship before the loan is fully paid. As with many things in life, it’s a risk if you’re willing to take it.
Thoughts?
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03/14/06, Read more in Cars, Credit, Debt, Personal Finance, The Home
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39 Comments - Share Your Thoughts
I agree with you, but I think it’s something that is rather dependent upon your situation. I paid a portion of my law school loans that would have been at 4.75% with a 0% balance transfer and used money that could have gone to the loans in some “stable” investments that I had. Sure, it was risky, but I figured I could always go back and get the additional loan and pay off the balance transfer if I were to lose the money that was invested.
I have a large HELOC as part of an 80/15 loan to buy my house that’s currently up to 8%. I’m going to transfer some of it to a 0% APR for a year/no-fee balance transfer . I can write checks out of the HELOC, so when the year’s up, I can just write a check to pay the balance (assuming there’s no check fee on the HELOC, which I haven’t recieved the details of check-writing on yet). This is much safer than the car loan, since you can’t pull money out of the car any time you want.
I also just signed up for a Citibank 0% on balance transfers and purchases for a year. With this, I can charge big items and the pay the amount to the HELOC. This will take some discipline, since I don’t want to end up with more outstanding debt at the end of the APR period.
Some people much more attentive to detail than myself would probably do well with these. I’d be the poor soul that would forget to pay back the card before the 0% period ended.
My wife and I have been using no-fee 0% balance transfer offers to quickly pay down our existing debt…it has worked quite well for us thus far.
I’m currently using 1.99% APR and a 2.99% APR on the life of the balance offer to pay off my 5%+ car loan.
My budget includes a conservative cash flow forecast in the next 3 years that I constantly update.
I would use a 0% offer to pay off debt without the current cash in the bank if and only if I can ensure that my cashflow will be enough to re-pay the loan at the end of its limited time offer.
Well, I have never done the 0% BT arbitrage game, so this will all be new to me. I’m currently working on obtaining my 0% cards. I’ll update the progress on my blog. Thanks for mentioning my blog, jim.
23094820934%? I’m not sure, but I think that this kind of APR might be in violation of local usury laws.
Well, it sounds like it should work. It’s actually a pretty clever way to pay of debt if you ask me. It’ll be interesting to see how this pans out for LAmoneyguy. I’m also working on getting some 0% interest cards. Here’s hoping!
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Do you have to pay taxes on the balance transfer? I’d imagine it counts as income since you get sent a check.
No because it is a loan, loans aren’t considered income.
I’ve found that using 0% credit cards to get out of debt really works, if done causiously, but you have to be careful. Try to avoid switching credit cards too often. This can lower your credit score because of too many credit checks.
Works well to pay off something. I am paying off my home equity line this way. Works like a charm. Its like free money that you can use. Yes you have to watch the dates and remember when offers expire, but well worth it.
I was paying my equity interest only for 3 years and now its dissapearing with the same money just because I am not paying interest but the loan itself. Great financial tool.
the only problem is that banks are no fools. I see less of attractive offers out there and almost everyone wants a balance transfer fee now.
I am in the process of securing 0% cards to pay off debt. I keep reading that you have to make sure the 0% card is PAID OFF, when the good rate expires. If I don’t get the card paid off, can I not just apply for another 0% for another year, and start over again??
Thanks!
Pam
Pam - Yes, you can always apply for a new card but there’s no guarantee that you’ll get one.
The 0% cards only work if you are normally fiscally conscious. If you rack of the credit cards or debt anyways, the likelihood of you saving the BT and paying the BT off on time is low. It’s like any other savings, if you are prone to burning a hole in your pocket, you will spend the BT amount in the savings account. Yes it is like “free” money you can use, but that is the problem of believing it is free money.
Pam, also take into consideration that there may be delays between BT, in which case you may end up paying the rolling interest from the first 0% BT.
Also, ensure that you get an accurate pay off due date. I have received different dates from citi: one over the phone stating the due date is 12 months from that date I requested the BT check; a second via email, which stated due date 12 months from when I opened the account.
BT are loans as noted above, so not taxable; however, if you are saving putting the BT into high interest savings, the profits are taxable.
Hi,
I was just wondering how you go about getting a BT? I thought it only works with other credit card debt. I have two helocs that I’m paying off and have excellent credit, but I don’t know how to go about getting the BT check.
Thanks,
Megan
I’ve been using these 0% offers for quite some time now. It has worked very well, but I am running into a few little obstacles. The first 2 or 3 worked out great, and I was able to get a good amount of credit on each of the BT cards. And since it worked so great, I wanted to keep going and see how much principal I could take out at one time. I even got my wife into a few cards so that they wouldn’t all appear on my credit report. All in all, I am saving a good deal of money in finances charges for a new vehicle and on my heloc. I’ve also taken some of it and invested it with moderate risk as I’m not in a cash crunch if I lose a little bit in stocks short term, but do shoot for larger gains.
My first obstacle: After getting about $70k in 0% BT’s, the credit well seems to have dried up. The new cards I am getting are not offering as much credit. And, it is getting tougher to find new sources for credit, as it is hard to find cards that offer both 0% and no transfer fee, or at least a low cap on max. for the transfer fee. At this point, I’m not sure it’s worth the hassle of taking out more, although in the entreprenuerial spirit I keep searching for a way to “make it work.”
My second obstacle: All the while, I have been checking my FICO score to see how it has affected my credit rating, and I’m down to about 750 average out of the 3 agencies. It was a touch over 800 to start with. So, it has affected the FICO rating a little bit. Granted this is not a huge problem as I’m not seeking any home or vehicle financing and do not plan to for some time, it is still not something that I want to see get much worse than it is right now.
My third obstacle: Although I am good at managing and taking care of the monthly minimum payments, most of the cards I have taken out do not go out of their way to tell you when your intro APR is going to expire. So, if you have several cards as I do, you’ll need to check frequently when each has to be paid off. I use Quicken for my finances, so I simply put notes into each account so I see them as they get paid which seems to work ok for me.
If I do everything just right and I get a modest return on this “free use of money” I expect about an 8.5% gain which would be about $6300 per year. That definately makes it worth the effort.
Rick
With a BT, what happens at the end of the 12mo 0% APR? If I started with a 17k BT and at the end of the 12mo period I have a balance of 10k. Does the new rate only apply to the 10k balance? At the end or near the end of the 12mo period can I just transfer the 10k balance to another lower interest card offer?
Are there penalties if I pay the BT amount off before the 12mo period?
Thanks, John
Your comments are the best I’ve seen on this subject. I also like the creative use of the HELOC as you can draw from it as needed. I have amassed slightly more debt than $70,000 and am running out of creditors as well. My credit score has fallen into the high 600’s and all the good ol’ companies are changing their rules. It’s very hard to keep it all straight and I’ve gotten burned a bit. Overall, it has been worth the effort. But, I think you and I are anomallies. 99% of all people will lose money when they try this because of three basic factors 1) most people don’t have the money management skills to keep from falling into the “free money” trap; 2) with all the rules changing constantly and so much fine print, it takes a tremendous amount of time to keep from being burned; and 3) many of the concepts introduced are above the average intellect of the people who use them.
My advise to most human beings is stay away from credit card arbitrage as the credit companies only offer low rates because they make money when it gets out of control. End result is no credit or no money for most people.
ok thats sounds good what happens if you have bad credit and no company whants to work with you i have couple companys that whats all there money all at once i cant do that i tryed for loans and credit cards and that was not good at all so what the heck do i do now
Rick, if you are expecting 8.5%, when the on-line banks are only paying about 5.05%, you are taking on too much risk (stocks, bonds, etc.). In my opinion…
Hi,
My name is Kayla.
I am a 25 y/o recent college grad (MS degree), and working on a salary of 34,000. I have been trying to tackle what to do with my credit card and the debts that I have accumulated. Here is the problem. I have my budget so narrowed that all I can do is make the minimum payment on my nearly 10,000 credit card. Not to mention, the credit card is at a shocking 29.4% APR (after being late once after graduating college). Which make my minimum payments 345/month. I have decided to make some sacrafices and allow my parents to help me pay down my debt. I will move in with them for the time and double up on my payments. I plan to be rid of that credit card within 2 years. Now, my question is…Should I continue with my plan of attacking this card on my own, or should I seek a debt consolidation company to lower my APR? This is the only credit card I have. Which decision would be best?
thanks for your help
Hey Kayla-
Sounds like you have a good plan working so far.
But, a 29.4% APR?!?
I think your next move is to definitely find a card with a much lower interest rate so you can save money on that too.
Why not follow the advice of this article and look for 0% APR or low APR credit cards that you can transfer the balance to? $10,000 is really not that much when it comes to credit card debt, so you shouldn’t have much trouble getting it transferred.
Hi,
how would I do a balance tranfser for an auto loan to a 0% credit card?
Thanks.
i double what was said about being fiscally responsible when using 0% BT for anything. your personal fundamentals have to be in order, else the 0% BT can land you into further debt. The temptation is too easy to continue charging against 0% cc thinking that it is 0% so why not. on top of that, if you’ve kept your old cards and maxed out the 0% BT card, then it is tempting to charge on the other cards.
i’ve only been doing the 0% cc for one year. I paid off my first one which came due this past month; however, i was a bit disturbed at how much i had charged on the account. although i had saved most of my pay, additional items crept into the figure. i’d charge normal expenses rather than paying those off from my checking account on a as need basis.
i’ve also decided to go for the 3% BT fee. I’ve been clearing over that so I feel I can still make money off the BT even at 3% BT fee given my income at present is tax free so whatever I make on interest/dividend will be vary low.
Kayla–
WOW. 29.4% after missing just one late payment??!?! I’m not calling you a liar, but most card companies give you a grace period the first time you miss your payment date. If a card company really hiked your payment to 29.4 after one missed payment, I wouldn’t do business with them EVER again. Find a card to do a balance transfer and get the heck out of there
I have a few credit cards with high interest rate that I dont use at all. I thought of keeping it, as I thought it will give me good line of credit…is it good to do so? also, if I cancel those credit cards, will my credit score go up? please give out your thoughts…
I have a solution for those who “run out” of places to go for more 0% credit or extensions on the 12 months. I have about $60k at 0% with Citi, Bank of America, Amex, Discover, AT&T (which is operated by Citi). I have very effectively reduced my annual cost of debt, but there are some things one needs to understand to actually win at this game.
To use the solution I am laying out in the next paragraph, it is important to note that to make this work you will either need a Heloc or some cash in reserve.
Simply put, when a 12 month period is about to expire, zero out your balance with either your Heloc or cash reserve, and within a month or two you will begin getting balance transfer offers again on that card. In that way, each of your cards can typically carry you for 12 months on, two months off, then 12 months on again.
For those new to this, some points you need to know that have not yet been posted on this thread:
1) You will never be allowed to transfer balances from a card or loan from one company, to a 0% card from the same company. They will refuse, as they don’t want to compete against themselves. For example, I have a Heloc with Citi and two cards w/Citi. I would have to use a check provided by the 0% card to deposit cash in my non-Citi checking account, then use that cash to pay my Citi Heloc. I could not simply write the transfer check directly to Citi for the Heloc.
2) Only do balance transfers on cards that have no other balance whatsoever, and never use that card for purchases (unless the purchases are also offered at 0%). The problem is that your purchases will sit on the card at the higher rate, and any payments you make will go only to the 0% transferred amount, leaving you unable to reduce your higher-rate balance until your 0% is fully paid off. Defeats the purpose.
3) As was pointed out in this thread, look carefully at balance transfer fees. A 3% fee is the same as paying 3% interest in your first year, so right off the bat you’re 0% offer is less enticing. If you are paying down a 7% or 8% auto loan or heloc, the 4% or 5% may not be worth the exposure you face on the back end when the 12 months are up.
4) Another interesting point: If you are paying off a Heloc, you will lose the tax deduction you were getting on the Heloc. For example, of you have a $10k balance on a Heloc at 7%, and if you are in a typical tax bracket of 25%, your effect rate on the Heloc would only be about 75% of the 7%, or 5.25%. Now, if you choose to transfer that 10k to a 0% card with a 3% transfer fee, you are saving only 2.25%, or $18.75 per month. Whether that is worth it or not is something you will need to evaluate for yourself.
Happy Money-Shifting!
Hi
I have a $13,000 loan on a car at 6.9%. My Citibank card is offering a 4.99% balance transfer for life with a transfer fee of 3% (no cap on the fee, so I’d pay $390). I owe zero on the card and obviously don’t plan to use it once I make the balance transfer. Is this worth it? Is this the best offer out there?
Thanks
If you find 0% transfers with great transfer rates, like max of $75 or none at all, this is a great way to combine everything especially if you have multiple cards charging you interest. We had some old student loans at 8% and some old college debt on a few cards. We transferred everything to 1 0% card at BoA and paid it down $12,000 the first year and only have a little to go so it’s been great! No more interest! Cliff’s advice is great. You just have to be disciplined and not use CC’s anymore and you will get out of debt totally. Our credit scores also jumped from low 700’s to near 800’s in 1 year by removing the CC debt.
I have been using 0% cards for a few years now. After filing bankruptcy after the flood of 93 and some sever medical issues, I thought I would never get my credit rating back up there. This helped a lot. Then I met my partner and she had some financial issues, as well. We figured out how much we could pay a month, how much debt that would cover, applied for 3 0 % cards. Next month we will be debt free in 15 months. The original projected pay off was 5 years. We now have 3 point bearring credit cards and use them for EVERYTHING, get the points and pay them off every month. This makes for nice xmas presents and vacations. It takes discipline, but what doesn’t?
I have been using 0% credit cards and hope to be debt free within a couple of years. It has worked fantastic! I keep my account information along with when the card will expire in my planner. It’s truly the best way to pay off debt! When I met my husband he was a financial wreck and had a credit card at 34% interest due to late payments. So I took over and it has worked great so far! This site has been very helpful.
Hello,
I’m looking for a card that has 0% APR on balance transfers, with no fee on balance transfers. Can you suggest anything?
I just sign up a 0% balance transfer from Citi. We are planning to have our wedding next two month. I think the balance tranfer will help our financial problem now. Or anyone have others suggestion to get a lower interest loan for the weddign banquet?
We have just started using 0% offers as well as lifetime fixed CC offers. In fact, I recently did a 25K offer for 3.99% for life of balance, and a month later received an offer for 2.99% for life of balance on same card. The company wouldn’t simply let me “refinance” to the new rate because of the rules, so I simply paid off the original transfer in full (from a HELOC- a good reserve cash flow to have for this sort of money management method), then I re-transfered under the new 2.99% rate for life of 25K. Transfer fees totaled $75.
Yes discipline is a key element. But, so is understanding when Credit Card companies tend to offer better deals and when they don’t. It’s been my experience that when consumer spending is way down and people panic about Global economy, the Fed cuts key rates on lending, and we benefit from these better deals…As I stated before, it’s always great to have a HELOC and good discipline NEVER to borrow from these CC deals more than you have available in your HELOC. So, yes, use your HELOC, or other cash reserves to help pay off in case the rate deals go dry for a while, or your credit score is getting too low.
We just bought a new car and the best rate on a 60-month loan was 6.24%. Chase sent us BT checks for one of our cards for 2.99% for the life of the balance. Paid off in 60 months, the interest difference is over $2900, so it’s worth the $75 fee to cash a check and pay off the loan.
Oh yeah, the car loan was through, get this, Chase! So even though they would not transfer between their 2 accounts, by cashing a BT check it works.
The other good thing is that the minimum monthly payment gets smaller over time, so if something comes up, we aren’t completely obligated to make the same payment every month as we would if we kept the car loan.
I have been using BT form of financing for the last 4 year. I have a rotating balance of around $400,000. (I use it to finance real estate investments) The only thing I can add to the previous post is I also open personal banking accounts at all the major bank that offer BT. So, I have a person account with Chase, Bank of America, Washington Mutual, and Wells Fargo. By doing this you can have immediate access to your BT funds. You can also set up personal unsecured lines of credit with each of the banks to cover the flip period. I have also set up separate entities and establish credit and credit cards in the name of those entities. (This does not lower your person credit score with those high balances.) Then about every 6 months I will apply for additional credit either in the name of yet another enitiy, maybe an account for one of my children (they need to start establishing credit, as well) or even in my personal name. You will be suprised at how they just keep giving you more credit as long as you personal credit score is looking good.
Get this… I have been using 0% BT offers for about 4 years now. While deployed to IRAQ 2005/06, the prime rate skyrocketed on my HELOC. It went from 7 to 8 plus. I was paying way to much interest and had enough. So I called Chase and they would not help me reduce the % rate. So I applied for 2 of their 0% BT (with convenient checks) credit card offers, one for myself and one for my wife and ended up paying the crazy $40,000 loan off at zero percent in 15 months. It was tough and had to penny pinch but did it.
I decided to keep at it and now that I am loan free, I use the 0% BT (convenient checks) and put them in Country wide 3.75% interest on savings (used to be 5.25%). I’m make about $150 monthly interest in my saving bank using $50,000 of the banks zero% BT loans
(too cool)
if nec. gotta love it.
Even better, I can use the banks money to pay off the min payments
Matt