Whether we like to admit it or not, credit cards have become a necessity. But all credit cards are not created equally, at least, mine aren’t. Credit cards carrying a high interest rate can drain your pockets and cost you more than you may bargain for, but a zero interest credit card or zero percent balance transfer, even if the rate is valid for a short period, can save you hundreds of dollars in interest every single year.
During the whole Great Recession fiasco, interest rates for credit cards shot up. We had become so used to cheap and readily available credit that we were shocked when credit card companies closed our cards or hiked our interest rates up by ten percent.
I didn’t suffer from any of that fallout. In fact, while everyone cried over credit card companies reducing their available balance or closing their accounts, my cards all had their interest rates dropped to zero and the credit limits increased by at least $5,000 on two cards. Oh, and I never paid more than zero percent interest. In fact, I haven’t paid interest on one credit card since 2009 I think.
How did I accomplish that? It’s pretty simple really.
- Even though my balances are high, I have always paid all of my bills on time and I have since I received my first credit card back in 1997.
- My credit score never fell below 720 or so. It was usually above 810.
- I always kept one card with zero or close to a zero balance
- I know how to make phone calls to my credit card companies to ask for what I wanted.
I have cards at competing companies and played them against each other every nine to twelve months. I would call one bank and tell them what the other was offering and how much I wanted to transfer over to their card. I always transferred at least $5,000 giving the bank a decent opportunity to make money from me…at least with a balance transfer fee if there was one.
Then a month or two before the zero percent interest would expire on that card I would call the competing bank and see what they could offer me. By utilizing this strategy and keeping my credit score high, the highest interest that I am now being offered on my cards are 0% with a 3% balance transfer fee (no maximum) and 1.99% with no balance transfer fee. That’s pretty decent, huh?
If you never shop with your card, having a zero percent balance transfer offer can be lucrative as an interest free loan. Some banks allow you to transfer money into your bank account without charging you a cash advance fee. Be sure to read the fine print terms because some banks are changing this policy.
When taking advantage of any juicy interest rate offer, always ask the following questions:
- When does the rate expire?
- Are there any transfer fees? If so, is there a maximum or minimum?
- If there is a balance at the end of the period, is interest charged from the balance transfer date, or does interest begin to accrue just on the current balance from the expiration period?
- Will payments be applied to higher interest balances first or to the lower interest rate balance first?
If you do transfer a balance over, be very realistic about whether or not the balance will be paid off in time. If not, be sure to ask whether interest is charged on the balance from the first date that the transfer hits your card (popular with store cards) or just on the unpaid balance at the time that the interest rate expires.
The last thing, which I did not mention, is to be sure that you do not use that card to make any purchase during the introductory rate period. Keep your balance transfer and purchases cards separate. If you make purchases on your card, chances are that your payments will be applied to the low interest balance first. Your higher interest rate purchases will accrue interest the entire time, maximizing the amount of interest that the banks will get from you. That’s why question #4 is in there.
I’ll give you an extreme example of how zero percent balance transfer offers have saved me money. I carried a student loan with an interest rate of 7.5% for almost ten years. I had a balance of close to $10,000 left on that loan, and my payments were being eaten alive by interest. So, I transferred the amount to my credit card. Many people will tell you to never do that because you can claim the tax deduction for interest on your student loans. But, I make too much to claim the full deduction for the interest. I was left claiming a tiny fraction, which didn’t offset the amount that I paid in interest. I saved more in interest in two months than I can claim as a deduction on my taxes for a year. The math worked for me.
If you’re thinking of getting a credit card just to take advantage of a good zero percent balance transfer offer, be sure to compare similar offers by all the credit card companies. A zero percent interest card can actually help you improve your financial situation. No consolidation company needed.