My Financial Tool Box: 0% Balance Transfer Offers

I am different from many personal finance bloggers in that I don’t see a problem with leveraging credit. Obviously, it can backfire on you, so you have to assess the risk. But if you understand credit and are able to make the payments, why not take the opportunity it provides to increase cash flow or pay down debt more quickly?

 

What is a 0% Balance Transfer?

 

Credit cards often offer promotional 0% interest rates for you to transfer balances from other credit cards to their accounts. Sometimes they even send you checks for larger purchases. The length of the promotional rate can be anywhere from 3 months to 18, or even 21 months! Sometimes they will wave a fee for transferring the balance, or at least lower it. The norm is 5%,  but can be 3% or lower. At the end of the promotional rate whatever you haven’t paid is subject to interest.  Obviously the credit cards are hoping that you don’t pay off all that you transfer to them so that they can make money.

 

I have signed up for new cards to get the promotional rate. I have also been offered the promotion from my current cards. The better your credit score, the more likely you’ll get the offer from your current cards.

 

What I’ve Used Balance Transfers For

 

Roof

The first time I used a 0% interest balance transfer offer was right after we bought our house. We knew we needed to get a new roof (and even negotiated for the sellers to pay for half of a dimensional roof) within a year.

 

I did a bit of credit card hacking first. Mr. Beach Life and I each got a Southwest credit card because we knew that we’d be taking a family trip to California. The 100,000 Southwest miles were enough for the three tickets to visit my family that summer. I split the cost of the roof between the two cards, and then used a balance transfer on a credit card I already had to pay the remaining $5,339. It had a fee of $160.17 for the privilege of taking 15 months to pay it off.

 

Basement Reno

The second time I used a balance transfer was that fall when we renovated our basement and turned it into an Airbnb space. I transferred about $11,000 to a card I already had with no transfer fee! Again it was for 15 months and I had to paid off before the promotional rate was over, which wasn’t a problem.

 

ALL the Expenses

More recently, I’ve used the balance transfers to fund our kitchen and bathroom renovation. For this one, I signed up for a Chase Slate card which gave me 0% interest for 21 months with no transfer fee. Unfortunately I was only approved for $5,000 and the renovation cost 3 times that.

 

For the rest I put the charges on my credit card with 1.5% cash back, then transferred the money over to two of the credit cards I already had that offered the 0% interest.

At the same time, I had two fairly substantial lawyer’s bills for putting my rental house into a trust, and the falderal that came with it.

 

Then you know, we got the pups. And they had some substantial vet bills. As well as the fence we put in for them. You know how I said that I don’t have an emergency fund? Maybe that’s not accurate…

 

Benefits

 

The balance transfer for the basement reno allowed us start earning income right away. We booked graduation weekend (the biggest weekend in our town) the first day we listed our space. Since November 2015, we have made at least our mortgage payment. More often than not, we make double our mortgage payment. The balance transfer allowed us to up our cash flow immediately, while gradually paying off the expense.

 

My latest balance transfer saved me money on interest payments. The kitchen and bathroom renovations were originally supposed to be paid off by getting a HELOC, but recently Mr. Beach Life and I decided against that. I knew I wasn’t going to be able to pay the balances by the time they were due. Luckily, one of my cards offered a 15 month interest free offer, with a lower transfer rate than usual. I paid $209.51 to extend the payment dates, but faced more than $300 in interest payments with my best case scenario.

 

Balance transfer offers can help eliminate debt more quickly. Because you’re paying $0 in interest over the promotional time, 100% of your payment is going toward principal. If you are serious about getting out of debt and have the offers available to you, it can help decrease your balances quicker and give you more bang for your buck. Lucy over at A Dime At a Time is using this strategy right now.

 

Ashley over at Blogging Away Debt has used this strategy in the past to tackle her mountain of student loans!

 

Problems

 

Not being able to pay the entire amount by the end of the promotional rate will result in paying interest. Any reduction in credit card debt is better than no reduction. But don’t let the 0% interest give you false security. You still owe money.

 

Along those lines, if you haven’t gotten a handle on spending, then the balance transfers might start a cycle of transferring balances then running up the credit cards and needed more balance transfers to make the payments. If you haven’t gotten to a place where you’re using credit responsibly, then balance transfer offers might cost you more than they save.

 

Where to Find the Offers

 

If you already have a credit card, you can check your account (or bill if you still get yours through the mail) for the offers.

 

For opening new credit cards for balance transfer offers, I use NerdWallet. The people behind  NerdWallet do the research for you, lay out the pros and cons, and give you estimates for what credit score is needed to be approved for each card.

Disease Called Debt

4 Responses

  1. jumpstartfromscratch

    Good stuff. I love this technique as long as you understand the risk, and your credit score is not a concern.
    Saving and paying cash is still best, but this technique can change how you think about the loan. This arrangement forces you to be serious about paying the loan off in a relatively short amount of time. If you are unable to successfully pay your debt in the promotional period, you are left scrambling for another free low interest transfer option.
    I’ve borrowed credit card money to clear bank checking account bonuses before.

  2. RAnn

    I”ve played that game a time or two–we did it with my fil’s funeral bill — but I find it a hassle to keep up with everything, though these days I can go in and set my bank account to pay a certain number of payments on certain dates and forget it…hmm.. may be time to look into this again.

  3. Gary @ Super Saving Tips

    I’ve used 0% interest offers this way before. For example at the beginning of the year, my wife needed some serious dental work done and we put the charges on an offer rather than making a serious dent in our emergency fund. It’s important to keep careful track so you don’t get hit with interest, and to have an emergency fund in case other expenses crop up in the meantime. Luckily, we’re going to be able to pay off this offer early.

  4. Lucy

    Thank you for including me in your post! I love your line ‘Any reduction in credit card debt is better than no reduction’ as we are now seeing much more traction in our quest to pay our credit cards off. It made zero sense to keep paying these high interest rates with these offers available to use.

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