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I've recently received an offer from a credit card that I always pay off each month. This credit card also has the lowest APR out of my 3 cards, but that doesn't really matter since I pay it off each month. The offer was for balance transfer checks with a temporary APR of 0% for a year, then it will go up to my regular APR. I've been thinking about using one to eliminate the debt on my only credit card that carries a balance. That card only has about $1,000 on it, but saving any interest is good in my book.

Are there any pitfalls to these types of checks?

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The pitfalls are:

  1. not paying it off during the so-called 0% time limit, and
  2. accumulating more debt in the meantime.
  3. the balance transfer is rarely 'free', it's common to have a 3% fee/$25 minimum
  4. once a balance transfer offer has been accepted, the account becomes a revolving charge account and the "grace period" during which new charges don't get charged interest disappears; new purchases are charged interest from the date of charge.

If you're disciplined in your CC usage, then it's a great way to more quickly eliminate your CC debt. (It's one of the methods we used in paying off significant CC debt.)

EDIT: to sum up, balance transfer checks are bait to get you to spend more.

  • @JoeTaxpayer when originally writing my answer, I removed mention of the fee because OP asked about pitfalls, not possible costs. – RonJohn Jun 15 at 15:50
  • I see. You can rollback my edit if you wish. It's a difference, I suppose. But ignoring the fine print, a potential cost, is a pitfall, isn't it? – JoeTaxpayer Jun 15 at 16:02
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    @JoeTaxpayer it's a matter, I guess, of what you consider a pitfall. While I disagree, I don't disagree that much... – RonJohn Jun 15 at 16:07
  • Another pitfall is that once a balance transfer offer has been accepted, the account becomes a revolving charge account and the "grace period" during which new charges don't get charged interest disappears; new purchases are charged interest from the date of charge. In particular, making the minimum required payment each month during the balance transfer offer period and a lump sum in the last month does not work; one has to pay the minimum plus all accumulated new charges during the month etc. – Dilip Sarwate Jun 15 at 17:02
  • @RonJohn I would consider it a pitfall if you're not aware of the fee. – D Stanley Jun 17 at 18:22
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There's usually a fee for a balance transfer. So while it may be "interest free", it's not "cost free". If, say, the fee is 10%, you have to compare 10% of the amount transferred to what you would pay in interest over the time when it is interest free.

The biggest catches may be more psychological. You move this debt to the interest free card, and then you say to yourself, "Well, now I have all this extra credit available! Now I can afford to go out and buy this expensive toy that I just can't live without." And then you run up even more debt.

Another catch is that you may say to yourself, "It's interest free for 12 months (or whatever time period), so I'll get it paid off within that 12 months and never have to pay any interest on it." But then you don't get it paid off, the grace period runs out, and now the interest rate jumps.

Not to say that such balance transfers are necessarily a bad idea. But make sure that you're really transferring debt from 20% interest to 0% interest, and not transferring debt from 20% interest to 25% interest (once the grace period runs out), or transferring debt from 20% interest to 0% interest and then running up more debt at 20%, etc.

My bank recently offered a home equity loan at 3.5% for the first year, then going up to 9%. No upfront costs. I recently married and my wife had a debt at 14%. I transferred that debt to the home equity loan, so the first year we'll save 10.5%, and after that we'll still be saving 5%. And I'm paying it off as fast as I can, at the present rate I'll have it paid off in about 1 1/2 years. Similar situation to what you're describing. I think it's working out for us.

So not saying don't do this sort of thing, but be sure to look at the terms carefully and make sure you know what you're doing.

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