As featured in The Wall Street Journal, Money Magazine, and more!

0% Balance Transfers

This article was written by in Credit. 6 comments.

The 0% interest credit card balance transfer game is a popular one to play. I had first encountered the trend on the Motley Fool message boards a few years ago.

The credit card companies are making these quick-money ideas a little more difficult to navigate, with rules that differ among the many different offers.

According to an article on MSN Money, there are twelve questions for which you must find answers before leaping into accepting a balance in return for some interest.

Here are the twelve questions, with some thoughts:

1. How long does the rate last? If it a lifetime 0%, or will the rate be only available for 6 months? This will greatly affect how much money you can make.

2. What are the minimum requirements to keep the rate low? Some companies require you to make purchases every month. This can get dangerous as I describe later. It goes without saying that one late payment will nullify the 0% rate and in some case the company will charge you back interest.

3. What is the interest rate for new purchases? If you do a 0% balance transfer, do not use the card for anything else. In some cases the terms of service require that you make a small purchase every month. If that’s the case, don’t go with the offer. When you pay the minimum every month, you will be paying off your 0% balance first, leaving a balance on which interest will be charged. Keep in mind, you shouldn’t pay the minimum unless the balance transfer offer is a lifetime rate of 0%. Each month, you should pay the total amount of money transferred divided by the number of months in the promotion, or a little more just to be safe.

4. Is there a balance transfer fee? If there is, it will reduce or eliminate any benefit you will get by keeping the balance in an interest-bearing savings account. You could possibly end up owing money to the credit card.

5. How is the average balance on the account calculated? This is irrelevant unless you are getting charged interest.

6. What will the rate be when it finally changes. If you use the balance received from the credit card only to pay off the credit card and if you pay the entire credit card off before the 0% promotional rate has expired, this is irrelevant.

7. What’s the difference between a cash advance and a balance transfer? Make sure when you do the transfer that it will not be interpreted as a cash advance unless the terms of the advance are the same as the balance transfer.

8. What’s the best way to transfer a balance? This is where the credit card companies can get tricky. Sometimes there will be no fee for a transfer initiated via phone while there is a fee for a transfer that makes use of convenience checks. Double-check the terms.

9. How are convenience checks treated? Their use may be considered a balance transfer or a cash advance.

10. What about new purchases? Unlike Nike, just don’t do it.

11. Do you qualify for the lowest rate? Sometimes the 0% advertisements are teasers. Once you apply, they might not award you the 0% rate, yet they’ll perform the transfer anyway. Watch out.

12. How is your information protected? This is a good question for any credit card, whether they’re offering a 0% balance transfer or not. In the wake of credit card security breaches, it’s good to be aware of how your credit is protected from fraudulent charges.

My final advice is to know what you’re getting into. If you’re awarded a high credit limit, this is a quick way to make a lot of money for little work.

But it could end up costing you in the end. When you open a new credit card with a balance and transfer almost the entire balance out, you change your used to available credit ratio unfavorably. This is something that credit reporting agencies analyze when determining your credit score.

If your credit score is sufficiently lowered by your used to available credit ratio, you may not qualify for a good mortgage rate if you decide to buy a house. That will cost you much more in the long run. In some instances, the individual would have been better off by not messing around with his or her credit.

Updated May 7, 2011 and originally published June 21, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .


avatar Hazzardjk

I guess I tend to think that this is a fairly risky proposition. For a couple reasons:

-Credit card companies have these rates to suck you in. One small mistake and they nail you (as you mention)
-The reward for this risk seems to be small. Why not focus efforts in another area where you could potentially make more money.
-How does this affect your credit rating over time and do you end up spending money via increased rates on other things like home mortgages if your credit takes a bit of a ding?

Anyway, I’m sure some people are successful with this, but it definitely isn’t for everyone. (at least not for me)

avatar Credit Cards PI

Using 0% APR credit cards can be very beneficial if you use them wisely. Obviously, you have to follow the rules to benefit! Make your payments on time and avoid overspending. If you can’t keep your spending under control, you shouldn’t use these cards– or any credit cards at all!

If you plan on switching cards to save money with a 0% APR, keep in mind that switching on a regular basis could have a slightly negative impact on your credit score. But if you don’t plan on making any big purchases soon (ie. home or auto loans), the small negative impact will be far out-weighed by the money you save on interest.