6 Steps For How to Responsibly Use 0% Balance Transfer Credit Cards to Get Out of Debt

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balance transfer credit card handHave you seen the credit card offers yet? You know, the 0% introductory APR balance transfer offers? In late 2010, after a bit of a hiatus, credit card companies started sending out 0% balance transfer offers to potential customers with good credit again. You may have thought that the days of balance transfer arbitrage were over after the peak in the mid-2000s – but they’re now back.

Most people don’t have much use for a 0% APR balance transfer and if you don’t, that’s great. But on the other hand, if you’ve made a few small financial mistakes over the years but you’re truly careful and disciplined now, a 0% balance transfer offer can help you get ahead and on the right track.

Effectively taking advantage of the balance transfer offer can help you get out of debt more quickly. However, keep in mind that temptations and pitfalls await along the way, and you can easily ruin your carefully laid-out plan.

Follow these six steps to get the money you need without finding yourself deeper into debt.

1. Don’t Get Any Cash Advances
Read the fine print carefully, and make sure you’re not getting a cash advance. Cash advances almost always come with major fees and extremely high interest rates. Some credit card companies will send you checks for balance transfers or cash advances, sometimes in the envelope right next to each other. If you choose to use one of the checks for the balance transfer, check several times to be sure that you have the right one and avoid triggering a cash advance. Cash advances almost never work out well and is one of the things you should not use a credit card for. I do not recommend them for any purpose.

2. Mind the Math
If you get a $5,000 balance transfer at 0% interest for twelve months and a 3% fee, that is the same as borrowing the $5,000 at 3% interest. It’s still a pretty good deal, especially if you plan to pay off a higher-interest loan or credit card balance with the money. But keep checking your math. If you are getting $5,000 with that same 3% fee but 0% APR for only six months, that 3% fee translates to an annual percentage rate of 6%. It’s not nearly as good of a deal.

Think about the balance transfer fee the same way you’d think about the APR. Many fees run as high as 5%, and that up-front cost is also the reason why you do not want to pay off a 0% balance transfer early. Leave the money in the bank where it can earn interest until the final payment is due. Of course the best type of 0% balance transfer is a no-fee transfer. It’s an attainable ideal: I received two no-fee offers in the last month, one from US Bank and the other from Commerce Bank.

3. Keep Lines of Credit Open
It is almost never a good idea to close a line of credit, for many reasons. First, closing a line of credit can hurt your credit score. Second, an open, unused line of credit helps keep your credit usage percentage low. If you have $10,000 worth of unused credit on one card and then open a 0% balance transfer of $10,000 on another card, your credit usage will show up as only 50%, even though you may never plan to use the existing card ever again. It’s a simplistic example, but the principle remains the same.

4. Keep Good Records
If you decide to use a balance transfer to help you get out of a financial pinch, be sure you have an exact picture of details like your balance, payments, deadlines, and end date of the introductory promotional period. Online credit card banking is a convenient way to keep track of your low-interest loan. Keep the the paperwork with the original terms of the balance transfer agreement in case you find any discrepancies later on. When the end of the introductory period is only a few months away, I always call the bank to confirm the date by which I need to pay off the transfer without paying interest.

5. Pay On-Time
Nothing will mess up a sweet balance transfer faster than late payments. If you are prone to late payments, a 0% balance transfer is not worth your time. With credit card fees and added interest you’ll owe far more than you did before the transfer.

6. Do Not Use the Card
After you transferred a balance to the new card, put it away. Resist the temptation to add to that balance by purchasing more stuff. A 0% balance transfer is a chance to take a breath, pay down debt, and get ahead – it’s not a card to use for digging a deeper hole.

Final Word

Make no mistake, companies offer 0% balance transfers because they find plenty of ways to make a profit on the mistakes customers make. If you’re not careful, despite your best efforts, you’ll be trapped in even more debt. But with these six steps, you’re prepared to make responsible decisions and use the transfer to your advantage.

Have you already given zero percent balance transfer credit cards a try? What dangers were the toughest to avoid?

  • SandyWT

    Great article. Using balance transfers can get you out of debt. I was out of full-time work for four years–and had high repairs on my house due to Hurricane Ike. I ran up about 50,000 on my credit cards and lines of credit. It was horrible, but I kept good records–and wrote every due date–and amounts on a single piece of notebook paper. Then i discovered balance transfers–and received a 0 transfer rate on two cards. I started paying debts off this way because it was easier with only 0% or 3% interest transfers. (I also worked many odd jobs–including cleaning houses, tutoring and babysitting children, helping elderly people, writing on the Internet, and many other jobs). For some reason, my credit score even increased. After I started to work again full time, I really started getting rid of the debt. I always checked my records several times a month, and had the balance transfer expiration date written by each debt, and would transfer any balance immediately to a credit card that was at zero (Once I paid off one, I would then keep it at zero balance until I needed it for a balance transfer. During this time, for some reason, my credit score increased, and i was able to get a new home loan at a much lower interest, and for only fifteen years.
    My dept is almost paid off now, and I’ve made large dents in my mortgage loan and hope to have it paid off in three years.
    The important thing is to write down all of your debts (it might be scary) and start making important decisions in paying them off. (I would used notebook paper and copy the balances down each month–sometimes several times a month if I made a large payment–because it kept me encouraged. Use balance transfers to your advantage–and don’t buy things you don’t need. I would pay my house payment (and was never late) before I even bought groceries. I might live on a dozen eggs, salad, and other healthy foods–and I never ate at fast foods because not only are these artificial, fatty foods unhealthy–they are really very expensive. For example, a large bag of McDonald’s french fries have 19 ingredients–and have been cooked in hydrogenated fat–and are very dangerous for your health. A five pound bag of potatoes cost about the same on sale as those awful french fries–and will give you more meals.
    Sometimes I would go back to those original amounts and feel proud of what I had accomplished. If I had problems with expenses with my house or car, I would make adjustments and keep going–and always transferred amounts before the higher interest rate kicked in. Keeping records would keep me inspired.
    Wow, if I can do it–then anyone can. The balance transfers helped get rid of all the high interest payments–and allowed me to put the difference against my debt.

  • Calvin

    Hey what about this scenario: I have two credit cards, an MBNA and a CTFS credit card with 17% and 25% Annual Interest Rate respectively. I maxed out the MBNA credit card, so I have $25,000 debt from the $25,000 credit. On the other hand, my CTFS credit card has no debt and $4500 credit.

    I received an offer from MBNA for a 4% APR balance transfer. Can I use a cash advance to take out $4500 from my CTFS credit card, deposit that money to my bank, and then transfer that to MBNA credit balance so that it becomes $20,500. Then I can use the 4% balance transfer offer to directly pay back the $4500 cash I took from my CTFS card?

    Is this a smart strategy? Please let me know what you think.