0 Apr Balance Transfer

Although a 0 APR Balance Transfer offer from a new credit card may seem to be too good to be true, they can actually present a win-win scenario for both the issuer and the cardholder. With some careful planning and strategy, one can maximize the degree to which they benefit from the offer to a level even greater than contemplated by the issuer.

The benefit of a 0 APR balance transfer is quite clear—it reduces the interest to be paid on a credit card balance to nothing for a set period of time. It is an inducement offered to well-qualified individuals, who are in extreme demand right now, to get them to switch credit card issuers. Put simply, the bank wants one’s business, and will pay to get it.

Before conducting the transfer, one should look at the fine print. Some issuers levy a balance transfer fee. With an industry-standard fee of 3%, transferring a balance of $5,000.00 could cost $150.00. Although this may seem expensive, if one is also going from a card with 18% interest to one with no interest for the first year, the transfer will avoid paying $900.00 in interest for a net savings of $750.00. The other issue in the fine print is that the promotional rate will typically be canceled if one misses a payment on that card or, with some issuers, on any account. Because of this, if one does choose to take advantage of a 0 APR transfer offer, one should setup an automatic pay system for at least the minimum payment to protect the offer for its life.

Many people are drawn to this offer by the ability to reduce payments. A $5,000.00 balance carried on a traditional credit card would carry a monthly minimum payment of $125.00, based on a minimum payment of 1% of the balance plus the interest due. On this same basis, a 0% APR card would carry a $50.00 payment. Given that the payment would go down a little bit every month, one would pay down a total of $568.08 in the first year. Those who truly want to maximize the benefit of the balance transfer should, instead, continue to pay $125.00 per month. That way, they will reduce their balance by $1,500.00 over the course of the year.

The way to really take advantage of 0 apr balance transfers is to find another offer for a transfer before the first one expires. That way, one can transfer their $3500 balance and pay it down to $2000. In this way, one could pay off their credit card balance in less than four years, even after balance transfer fees. The person who did not take advantage of the 0 apr transfer and paid the minimum every month would still owe $3086.45 after four years, or $1521.74 if they kept paying $125.00 per month but never transferred out of their 18% card.