I’ve got a credit card which I use for nearly all my purchases (because it earns airline miles). I never carry a balance, and I always pay it off each month without exception.
This month, I’ve put a few extra purchases on my card, and I have a larger total on it than usual. Typically I put ~$500 on it a month, my next bill will be at least $2500 (could be closer to 4K with some car repairs I’ve been putting off). Now, I still have the cash to pay it off like I always do when the bill comes in, but I have another idea.
I’m considering applying for a credit card with one of those 0% introductory balance transfer rates for a year or whatever. Then, instead of paying off my card this month, I’d transfer the balance to the new card and put the money I would have used into a 1-year CD. I’d make minimum payments on the credit card for the year, and pay it off with the CD when it matures. For my normal credit card, it would be business as usual again, and I’d be paying it off in cash each month after this.
Now I do realize there may still be a balance transfer fee to account for, and I’d have to be sure to make the minimum payments on time or risk getting hit with interest, but besides those factors, is there anything else to worry about? As long as I’m disciplined enough to make the payments and make sure I have the cash available to kill the balance before the introdcutory period ends, will I be OK? Could this possibly affect my credit score or something like that? Any negatives I may be overlooking?
Every one of these things I’ve seen carries a 1% service charge. Read the fine print.
If you miss any payments, it goes back to the regular rate.
Lower interest balances are paid before higher interest balances. That means if you transfer $5k today at their intro rate, and then go buy $200 on the card tomorow, you CANNOT pay off the $200 until you pay the first $5k. So just do the maximum transfer amount that is your limit and then put the card away and don’t use it until you’ve paid off the transfer.
I understand it will affect the ratio of your available credit versus your debt. I don’t know what long term effect this may have.
I got one and they wouldn’t let me do the transfer. Said the fine print had words “subject to approval”. I thought they meant approval for the card. No, I got the card. There was a separate approval for the transfer. So, okay, get the card but cross your fingers on the transfer.
I just read point 3) above. That would have killed the benefit for me anyway, as I had put some charges on the card “just to try it out” before I tried the transfer. I would have been stuck a long time accumulating super high interest on that amount, negating the transfer savings.
I get these offers all the time. In my case, they typically offer one free balance transfer when you sign up, but subsequent ones do carry a transfer fee.
The last time I took advantage of one, it worked as promised. I transferred a balance, stuck the card in a drawer and never used it again. I made sure to pay it off over the allotted period (16 months, in my case) and then cancelled the card. Didn’t cost me a cent.
Worse. if any payments are posted even an hour late, you default. And some CC co have been accused of holding payments for a day or so so that they become late.
I use only two cc, both of which have local bank branches and I pay my bills in person.
You have to ask yourself whether the time and effort and risk is worth the savings. What would you earn on a CD? If it’s 4%, then if you put $4000 on it you’ll earn $160 in a year, or about $13 per month. For that, you have to apply for the card, do the balance transfer, make a payment to the card every month, fill out the cancellation, and then hope that there wasn’t some kind of gotcha or mistake on their part or miscalculation on yours that erases all your profit and maybe a bit more.
To me, it wouldn’t be worth the hassle and the risk.
I have actually done exactly what you are proposing. Twice, in fact. Both times (with CitiBank), I have had zero finance charges, and zero transaction fees for the duration of the offer. In the first case, I paid off about $4000 worth of debt on another card, and CitiBank also sent me a check for $1000 on top of it. In the end, it took me about five or six months to pay it off, and it amounted to a 0% interest loan, with absolutely no extra cost anywhere. I made sure to read the fine print, but both offers came scott free of charges. I didn’t use the card for anything else, nor did I miss any minimum payments (and, in fact, I paid much more than the minimum each month until it was paid off).
So, it is possible to get the deal you are talking about, and if you do it right, you’ll be getting a free loan.
I did something similar a couple years ago. Got an offer for an Visa card with 0% both on balance transfers and purchases for a full year - just as we were facing major home improvement expenses (new air conditioning system and relandscaping the back yard). We had already put the A/C system on our regular credit card, planning to use the HELOC to pay it when the bill came due - but we wound up using the balance-transfer on the new card to cover it instead. Even with a fee (which was capped, so it was only 50 dollars) it was cheaper to do that than to pay the HELOC interest for that year. The landscaping we charged directly to the new card.
At the end of the 12 months, we simply paid it off with the HELOC (we’d been paying bits of it during the year). Had we screwed up and missed that payoff, yeah it could have cost us. But we were careful and it worked out.
We’re doing something similar this year - needed a new washer/dryer last spring, put it on the Sears card (12 months, no interest), put the purchase amount in a CD. At the end of the year, we’ll have a little more cash than if we’d paid cash for the appliances. UNLESS we screw up and don’t pay in time of course.
So basically - if you’ve got the discipline to do it right, it can work out but the profits aren’t enormous.
I too do this fairly regularly. I think I’ve got about $50K of credit card balance outstanding right now, most at 0% and the hightest at 1.5%. Meanwhile, my corresponding cash is well invested. This is exactly how banks make money & I rather enjoy playing their game against them.
I’ve never had any shenanigans from the CC co, like holding payments until they are late.
Just don’t make any dumb mistakes. Or if you do, pay the balance in full the next month to limit the damage. If that’d be hard to swing, that’d be a reason to wonder whether this particular deal is safe enough for you.
I did that when I was unemployed. I transfered my credit card balance to one of those 0% APR the first year free transfer credit cards so I could keep more cash on hand for other purchases. Once I started working again, I paid off the card.
I just heard this on the Clark Howard show and it blew my mind. There are credit cards that will raise your rate if you are late on ANY bill. If you forget to pay your electric bill you become a credit risk and may end up with a 30% interest rate. READ ALL FINE PRINT.
Chalk me up as another one who takes advantage of those 0% transfers. I’ve been doing it for about 3 years now. I’ve made a couple of mistakes; paying a bill late and thinking one card had no balance transfer fee. Watch out for this! Most definitely read the fine print and keep up with the cards. You have to be organized and keep it all straight. I have 2 cards that are at 0% - one is set to expire soon so I’m keeping an eye out for another offer. If you search hard enough, you will find one that gives you everything you want.
Yep, we financed a little over $14,000 in expenses when we bought our house a couple of years ago. Every month they’d send us new 0% checks, hoping we’d use them and screw up how much was due by what date. But I kept a meticulous spreadsheet so I knew exactly what checks I’d written and what balances were due each month to avoid penalties. And during that time we didn’t use that card for any other ordinary purchases. In the meantime, we opened an online bank account with Emigrant Direct, which earned us over 5% interest (it’s now paying 5.05%, but has been as high as 5.25%). Sweet! Like LSLGuy, I loved beating them at their own game.
