"Using Balance Transfers for Extremely Low Interest"
by Eddie Patin
I have a lot of debt. A LOT. The national average for an individual's debt is something like $10,000 or $14,000--I don't remember. But I have around $40,000. And that is nearly all credit card debt.
For a long time in my past, I used my credit cards irresponsibly, and racked up this debt, which was all on liabilities: doodads, food, entertainment, junk, cars--all things that were consumed and did not contribute to my net worth. Of my $40,000, only $6000 of it was for schooling. The rest was junk.
Over the last few years, while trying to get this debt monster under control, I learned a lot about ways to keep my payments low, and to keep my interest extremely low, so that I never lost control and never had to face bankruptcy.
The best way to keep your interest rates extremely low is through the intelligent and responsible use of balance transfer offers.
What is a balance transfer? It's exactly what it sounds like. Your credit card companies, and many banks with whom you do NOT have credit cards, probably send you lots of junk mail, right? Most of that junk mail is offers for attractive 'low interest for 6 or 12 or 18 months' balance transfers and cash advances.
A balance transfer will allow you to transfer a specified amount you owe on one credit card over to another, used by banks all in competition to try and keep as much of your overall balance as possible on their bank's credit card.
Normally, balance transfers are lousy deals. Cash advances (in the same area as balance transfers, but different) are HORRIBLE deals and should NEVER be used.
Back to balance transfers. If you just called up your bank / credit card company and said that you'd like to transfer such-and-such amount from another credit card onto theirs, they'd do it for you at somewhere around your normal purchase interest rate, and charge you a fee of something like 3% (with a minimum of $50 or so). That is not a smart deal.
However, as I mentioned before, you'll see plenty of 'special deals' in junk mail offers. Occasionally, you might be able to call/visit your credit card companies and ask if they have any special balance transfer deals going on right now, and they might. But it's usually easier to find the good ones in the mail.
You do get credit card junk mail, right?
If you don't, just go on living and you will. If you just moved to a new town, there might be a while where you don't get them. But, if you ever apply for in-house financing* at your local musician's store, or furniture store, or Home Depot, or wherever, the credit reporting agencies will update your personal information with your new address, will then SELL your information to the credit card companies, and you'll eventually start getting junk mail.
(* - Now, don't go out and finance a new washer/dryer set just to get in the junk mail system. It's rarely a good idea to finance anything. The point is merely that when the system updates, be patient, and you'll eventually start getting mail offers.)
On to the mail.
To take advantage of balance transfers, you have to have more than one credit card, so that you can transfer back and forth.
Say you're receiving junk mail from a credit card company you already have. You may receive an offer for a 1.9% balance transfer where the interest rate will be good for 6 months or a year before going up to the normal interest rate. Or, better yet, a 0% APR. Always good. Before transferring a higher interest balance from another card to this one, make SURE that there isn't a fee for using the balance transfer. Most banks will charge a fee, but some banks don't (like Discover, or sometimes Wells Fargo). If you do a balance transfer and pay a fee, you might end up losing the money you'll save on the low interest by paying that fee.
You're also likely receiving offers from banks with whom you do NOT currently have a credit card. To take advantage of their balance transfer fees, you'll have to open an account with them, which will only start you with a small limit (like $1500). Make sure there's no balance transfer fee, and if the APR is good enough, and for long enough (at least a year), go for it. Don't open too many new accounts like this, though, because having too many accounts open will hurt your credit rating and make it harder to open other accounts or request higher credit limits.
After you make a balance transfer, with NO balance transfer fee and very low interest (less than 2%), record the date you made the transfer and the date the 'special rate' will end. By that date (a year later or whenever), make sure you've paid off that balance, or have another (good) balance transfer offer ready to move it again.
If you're organized and keep track of your various credit cards, their balances, and the details of their balance transfers, you should be able to juggle your balances around indefinitely with very low interest rates while you pay them down. Keep track of new offers when they come in, and set the good ones aside in case the time comes to use them (they usually expire in a month or two).
Warning # 1:
Juggling balance transfers like this is not a cure to credit card debt. It is only a way to keep your rates LOW while you systematically pay them off. Focus on paying them off, and keeping your interest rates extremely low will allow your payments to bring down the actual balances (the principal) instead of being wasted on interest.
Warning # 2:
Make sure you're not making purchases on the cards you're using for these balance transfers. Most credit card companies will apply your payments to the lower-interest balances before the higher-interest ones. That means that if you have $2000 worth of purchases at 15%, and $4000 worth of a balance transfer at 0%, then your monthly payments will be being applied to the (good) 0% balance, while the (bad) 15% balance is just sitting there eating up interest.
Some companies I've had good balance transfer experiences with:
Discover Card. The best. I once opened an account with Discover to take advantage of a balance transfer they sent me in the mail. I'm still using it, because it's my BEST interest rate account, and my lowest priority to pay off because of it. The deal was: 0% APR on a balance transfer, with NO balance transfer fee, for 12 months. When the 12 months was over, I was able to keep the 0% for LIFE (on that one balance transfer) as long as I make three purchases a month with that card. So, every month, I buy three packs of Ramen (12 cents each) from Wal-Mart to keep the 0% going. For a while, I had a pet scorpion, and I bought three crickets (7 cents each) from Petsmart. Keep an eye out for this deal, or call and ask if they offer it for new accounts.
Wells Fargo. I have a Visa through Wells Fargo, and I ask the tellers about balance transfer deals from time to time. Sometimes, they offer a 1.9% or 2.9% for 6 months with no balance transfer fee. It's a short time frame (I prefer a year), but it works.
US Bank. My most recent transfer was with a new Visa account with USBank. 0% interest for 12 months with no transfer fee. This was from junk mail.
So, playing the balance transfer game, if you know what you're doing, can be a good way to keep your interest low while you're focusing on systematically eliminating your credit card debt. But, make sure you're not paying any fees, make sure the deal's sweet enough, and make sure you're leaving enough room on your cards to move those transfers around. Learn about how it all works, and you'll have no trouble keeping your interest rates low and taking control of that beast called credit card debt.
