Lets say you get a balance transfer at 0% for 12 months. You transfer your debt, pay it down as much as possible for say like 10 months. Could you not then apply for a new balance transfer to a new card for the remaining debt at 0%, to avoid the interest on that remainder?
Am I missing a catch somewhere?
Thanks!
Dumb Question About Balance Transfers
byu/Contigo887 inpersonalfinance
Posted by Contigo887
6 Comments
Sure. It’s not going to be *net* 0% because there will always be a balance transfer fee. But it’s a strategy that some folks do employ.
The key to acknowledge is that at some point, you’re going to have to pay off the money that you spent/borrowed. This is not an “infinite money glitch.”
And there are those who fall into a worse debt cycle with access to more credit/debt.
Eventually those offers dry up. Credit conditions change and you can’t just apply for another one. Either that or the lenders will specifically not want to lend to you because you have too much debt.
You are probably young. I am not that young. And I have seen many credit cycles. There is nothing wrong with taking advantage of introductory low rates, but be careful that you are not absolutely counting on rolling over into another one.
My intention is not to use 0% transfers to stall paying back debt or make more debt. My intention is to pay off my owed money as efficiently as possible.
No catch. Not technically, at least. Though there’s always going to be a balance transfer fee, typically between 3-5% though these rates have been rising.
There are a few “gotchas” though. Because you know they’re not offering these great deals because they’re generous like that.
1. If you’re opening a new account for the balance transfer, you don’t know how much available credit they’ll give you. This is the #1 issue I see. Someone has $20k of debt and the interest is crushing. They apply for a new card and take the hit to their credit for the new account only to be told, “congratulations on your new card with a $5,000 credit limit.” Thanks for nothing.
2. Psychology is working against you. People decide to get serious about paying off credit card debt, they do balance transfers, they’re hyper focused on paying off debt and throw every single available penny at it only to have life happen and/or old patterns take over and before you know it, you’re even deeper in debt because now the new card is maxed out and all the progress you made on the old ones somehow got erased.
Don’t get me wrong though – balance transfers are the best tool available for getting out from under crushing interest and paying off credit card debt. But it’s not as easy as it sounds. You need a really, really solid plan. You need discipline and stamina. And a really solid plan. Good intentions won’t get the job done. Did I mention you need a solid plan?
Don’t be a minute late or penny short on a payment or they will instantly default you to the agreed interest rate in the agreement and many times they have the ability to charge that interest for the entire length of the balance transfer (even the months you paid on time).
Once that interest snowball gets started, it’s tough to stop
No catch. Even with balance transfer fees, it’s still cheaper than any loan you can get or paying regular credit card interest. Just be diligent about making your payments on time. This is how I paid off my wife’s engagement ring!