But only if it is a good deal. How to use a balance transfer. So, I recently learned about balance transfers when I received an offer from my Aviator Red Barclay card. The terms were, 0% APR (annual percentage rate) for 14 months, with a 1% one-time transfer fee or $5 whichever is greater. Normally, I see these deals and throw them out because they are rip offs, usually with a 5% transfer fee and 22% APR. But I noticed that occasionally, a good offer comes through and I should start paying attention.
I started calling all my credit card companies to see what this balance transfer is all about. What they said was that a balance transfer is a credit card company buying your debt off another company. They either send a check to that company, or do a wire transfer.
Obviously, it would be smart to transfer credit card debt from a card that is charging 25% APR to a card that has 0% APR, but then I got to thinking…
CAR LOAN BALANCE TRANSFER
If I could get a 0% APR for 12 months, and it will only cost me 1% of transferred amount, then If I have a car loan at 3% and I was going to pay it off in the next year anyway, I should balance transfer that debt to the credit card, get my title from the lender, and save 2% interest. I had $4000 left on the loan so that would be a whopping $80. But I bet I could save more…
STUDENT LOAN
I have a student loan at 8.5% APR, it is only $2000 and I was planning on paying it off in the next twelve months anyway…well if I transferred it to the credit card, I would save my 7.5%. This comes out to $150.00 Check out How To Save Money By Paying Less Interest On Your Student Loans
BANK ACCOUNT
I kept thinking about it, if it is just a check they send and then I owe them, can they send a check to my bank account? I talked on the phone with a representative and they said that they could. This means that I could take out “short term loan” for only a 1% origination fee. If I paid it back before 12 months, then it would be interest free. I could use this money to make payments on my credit cards that have smaller balances as so I don’t have to pay the $5 minimum.
It’s obvious but this is how they get you…you don’t pay them back in time. A soon as your year is up, you are paying 25% APR.
BUT WHAT ABOUT POINTS?
You will be happy to know that when a balance transfer occurs, the credit card pays you balance just like you would have paid your balance. This is very important because you need to actually pay your balance to accrue those points/cash back rewards. You will still earn the points…
WHAT THEY DON”T WANT YOU TO KNOW
If the balance transfer fee is 1% then you can beat that with a reward card with 1.5% or higher cash back. If you have a category card that gives you 5%…you have to potential to make 4% cash back from transferring that account even when you didn’t use your own money to ay it yet. This gives you more liquidity and makes it even easier to pay off your debt. Check out How to Use Your Credit Score To Make Money-BIG Money
IN CONCLUSION
Use balance transfers, to eliminate high-interest debt, free up money (liquidity), earn perks faster all without spending your own money yet. Remember when you pass the buck, you still have to pay for it at the end of the 0% period…unless you have another balance transfer option. then the game keeps going.
