I’ve written quite a bit in the past about 0% balance transfer credit card offers and how to take advantage of them. All in all, I think these offers can be great tools for generating a bit of extra cash or helping you along in your debt repayment efforts, but they’re certainly not for everyone. In fact, a recent MSN/Money article provided a nice list of situations in which you probably shouldn’t play the 0% balance transfer game. Without further ado, here they are (along with some commentary from yours truly)…
“I already carry some credit card debt.” If you’re already carrying credit card debt, then you have bigger fish to fry and you should probably avoid playing. However, unlike the article, I think 0% balance transfers can still be useful… Indeed, if you can get approved, these offers can be a great way of consolidating high interest credit card debt. And since there’s no shortage of these offers, you’ll most likely be able to roll your debt from one 0% card to another until whenever a promo expires — before you know it, you’ll have the whole ball of wax paid off.
“I don’t have an emergency fund.” If you want to stay out of trouble, you’ll need to keep the principal on hand so you can pay off the balance when the promo period ends. If you don’t already have a stash of cash, you might want to avoid the temptation of having a giant balance transfer laying around in your bank account.
“I bounced a check or paid a late fee in the last year.” In short, these occurrences are a sign that you may not be sufficiently detail-oriented to profit from a balance transfer without slipping up and missing a payment, or failing to pay off the balance before the 0% period ends.
“I’ll soon be in the market for a major loan, like a mortgage or a car loan.” As you may or may not know, carrying high balances (especially if you’ve nearly maxed out your credit limits) can hurt your credit score. So if you’re looking to apply for a loan in the near future, you might want to shy away from large-scale credit card arbitrage.
“My credit isn’t that great, and the credit limits on my cards are low.” If you don’t have good credit, you might not qualify for the best offers (though it doesn’t necessarily hurt to try). Moreover, if you can’t get a large credit limit, then you’ll be limited in the amount you can earn, so it may not be worth the trouble.
Situation 6: You think that you could successfully remember to pay on time, you have fine credit, you aren’t in the market for a loan, but you just have no interest in the amount of effort required compared to the return that you would get. That’d be my situation… heheh.
Yeah, I also meant to make use of balance transfer credit cards to cope with my debt and save on it. But when I applied it appeared I had no sufficient credit for it. But then I thought that maybe it saved what credit I had as I would most probably miss payments on the new credit card and accumulate another debt.
I don’t think I will be in the market for a loan anytime soon, but I would like to know how long it would take my credit to normalize again after I stopped doing the 0% APR game, and again started having a low balance/limit ratio.
Great post. I see the 0% game pedaled a lot lately and I feel that people get caught up in the fact that they can make money off of other people dime. I think your time and energy is much better spent investing in people and ideas that will provide lasting and more valuable returns(changing spending patterns, start a business, etc). I don’t think it is worth the effort, but you highlighted some great reasons why people should not consider trying to mess around in the 0% game outside of personal preference.
I was hurt by the 0% game. At one point, I thought it would be wise to consolidate my debt on a 0% interest card and pay it off quickly. I applied for it without knowing that someone had opened a loan in my name and it had defaulted. Well, I was approved for the card, but only for $300, not the several thousand I needed! This not only kept me from doing that, but it also hurt my credit even more in the long run, because it shows new creditors I can’t be trusted with a high limit. Granted, they’d be right about that. To make it worse, there was a fee for transferring a balance.
Excellent post, and some good points raised. Here in the UK, we call the act of making money from investing money borrowed at 0% (or low rates) “Stoozing” (long story, but just Google it, or take a look at http://www.whatsthecost.com/stoozing.aspx). I “stoozed” for about 2 years, but stopped at the beginning of this year due to the fact that most credit card companys (in the UK at least) charge a balance transfer fee these days of around 2 to 3%. It’s certainly not for the faint hearted, and although I made around Â£2,000 ($4,000) in two years (having 0% debt of over Â£40,000 at one point), I’m almost glad stoozing isn’t as profitable as it used it be!… It does cause quite a lot of stress!
Thanks for this and other helpful posts. I just discovered your blog and I love it!
Have you found any 0% credit cards lately without transfer fees? I paid for my college education and a new (2006) Honda Civic with 0% credit cards and I have been transferring them and paying them down for years (keeping the total debt under 12 grand) without ever paying any fees, even balance transfer fees. Now I cannot find a card and I have 3 months to pay my existing cards off. I have paid the cards down significantly and I have an “emergency fund” (about half of which are in CDs) so I will be able to pay the balance when it comes due. I have been able to take advantage of 0% credit for so long without paying a dime for it. Is it really over?
Tom: Pretty much all issuers now charge some sort of balance transfer fee, typically in the 3% range. You may be able to find some 6-9 month transfer without a fee, but if you’re looking for anything in the 12 month range you’re almost certainly going to wind up paying a fee. The good news is that a number of issuers cap these fees at $50-$75. My best advice is to dig around in my list of 0% credit cards.
Mostly the reason to avoid the 0% game is that you will spend the 0% money and then suddenly you will forget a payment and the rate will skyrocket. Enough people screw this up to make the companies a lot of money, that is why this free? lunch exists. For those that win, the winnings are now very small…i.e. a de facto 0% line for a year, no profit available due to this stupid credit crunch!
I am still confused whether a transfer would be good for me. I have excellent credit score, pay off card balances mostly at end of each month, but planning to do a $15,000 home repair. Would it be best to do a transfer and have disposable cash? I’d prefer to find a way not to take the funds from my very moderate savings. Thanks in advance for your ideas.
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