Using 0% Balance Transfers to Pay Off Debt

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Popular 12 month 0% balance transfer cards:

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 Dollar Savings 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 lot of savings at a high yield savings account. He 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.


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