Warning: The Credit Card 0% Transfer Game

January 9th, 2007 | by Molly's Brother |

From time-to-time, I run across fellow personal finance bloggers who think you should try to play the credit cards against themselves. They suggest transfering balances from 0% introductory rate to 0% introductory rate. Or they suggest opening credit cards and reaping the benefits of the rewards programs.

My thoughts on this: Proceed with caution.

There will be other bloggers who will disagree with what I’m about to say, but chances are, I’m probably not speaking to their specific situations. My readers are individuals who are interested in getting out of credit card and consumer debt–for good.
Here’s my problem with the constant balance transfers:

  1. You are playing into their hands. If you transfer your card from a higher interest rate to a 0% introductory offer, chances are you’ll keep charging things away. If you make this transfer, then you should stop using your card until your balance is paid off.
  2. Make sure you pay your bill on time. Unlike other bills you have, the “grace period” for credit cards occurs before the due date. If you are late once, you lose the introductory rate.
  3. Three words: Universal default, universal default, universal default. Please be aware of the existence of universal default clauses in your credit card agreements. What is universal default? It is a concept that allows credit card companies to raise your interest rates if you are thirty days late with a payment, even if you were late with a payment on another card to another company. Basically, if you default with one card, each company you have an account with reaps the benefits. Read more at bankrate.com about this concept. (God, I love BankRate.com)

Before you can “beat” the credit card companies at their own game, make sure that you are in complete control of your financial future. Granted, it is always better to get a lower interest rate. But you need to know that you still need to proceed with caution.

  1. 6 Responses to “Warning: The Credit Card 0% Transfer Game”

  2. By Sun on Jan 9, 2007 | Reply

    I am afraid I have to disagree with you, as you said. My problem is that the three items you listed (that I agree) are not unique to 0% balance transfer. As a matter of fact, these items has nothing to do with rate at all.

    1. You should not keep charging on your cards if you “are interested in getting out of credit card” whether the card has 0% rate or 15% rate. And if “you’ll keep charging things away” when you are already in debt, that’s another problem.

    2. You should make on time payment to any cards, regardless the rate the card carries.

    3. Never late for cards.

  3. By Molly's Brother on Jan 9, 2007 | Reply

    Sun–

    You are absolutely correct. The three items I listed are in now way only connected to 0% balance transfers. I was bringing up those points because I think, many times, people think that 0& transfer will be the secret to their financial woes.

    This was written for those who have more of a troubled past/late payments/etc as caution that you still need to proceed with caution with 0% introductory rates.

    Thanks for sharing your thoughts.

  4. By frank on Jan 9, 2007 | Reply

    From my perspective, the money was too hard to pass up. I’ve taken out more than $30,000 in balance transfers (mostly through citicard) and put it in the bank. At 5.05% APY and a 1.5% minimum payment, I’m going to be effectively making more than 4% APY even if I pay the balance off a month in advance. That’s over $1,000 in essentially free money for just signing up and paying another bill. Add on top of that the $400 in gift cards to places like Target, BabiesRUs, as well as utilizing a free trial of credit protector where citi paid us to keep the cards (we then canceled the credit protector) and it’s been quite a lucrative game.
    Yes, Universal Defaults suck. But I have universal default on all my cards. Not only that, but I can pay off the balance in the blink of an eye if they jack up the interest rate.
    All-in-all by being mindful of the risks, reading the fine print, and just treating it as just another bill, we feel that the rewards outweigh the risks we are taking.

  5. By Molly's Brother on Jan 9, 2007 | Reply

    Frank–

    That’s amazing. My blood pressure increased at the mere thought of leveraging cc in such a way. If you can do it responsibly, then more power–and more money apparently–to you! Awesome.

    I know you have shared that experience in the past and I am always in awe when I think that you are able to handle that.

    Wouldn’t you agree, though, that most people wouldn’t be able to handle doing what you did?

  6. By frank on Jan 10, 2007 | Reply

    That might be the case, but for us it’s been working well.

  7. By Molly's Brother on Jan 10, 2007 | Reply

    Awesome that it’s working for you. Scares the hell out of me though. LOL.

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