Risks and Rewards of Balance Transfer Credit Cards

After I resolved the Loan Group fiasco, I undertook our most risky strategy yet. We used a Zero-percent balance transfer credit card.

What is a 0% BTC?

Many credit card companies issue promotional offers to entice customers to switch their business. Zero Percent Balance Transfers are a common enticement. By applying for the card and indicating what current credit card you have a balance, the new card issuer will pay off the old card, and issue you a new card with an equal balance. This balance will then have a 0% APR for a term, usually 6, 12, or 18 months, but as high as 43! This transaction often cost 3% of the balance, or $200. The benefit for many customers is that the 3% fee is many times less than the interest they were paying on the old card. The credit card company makes money when people keep that big-ole debt past the 0% term, and start paying a much higher APR, usually 21%+.

What we did

These credit card offers are hard to come by. I searched around the interest, and eventually called my bank, USAA. A friendly agent informed me I should go online and requested a convenience check from an existing line of credit. I should then write myself a nominal check (which also comes with a service fee).  This would likely prompt the system into thinking I was a good credit risk, and it would issue me a credit card offer.

Just like he said, a month after I cashed my convenience check, I received an offer for a new credit card with a zero percent Balance Transfer and Convenience Checking option, for no fee, with a zero percent APR time period of 18 months.

Because Student Loans which are paid with a credit card are assessed a fee to cover the transaction fee the card issuer charges the loan servicer, I took an $18,000 convenience check (making sure the fee was indeed waived as the Credit Card offer stated) and applied it to our next highest interest rate loan, which was equal to the refinanced loan at 5.65%, adjusted for auto pay. We chose $18K as a goal because it was a large enough amount to make a difference, but a manageable amount to pay off if anything were to happen, such as job loss. Normally Balance transfers are assessed an upfront 3% fee.


Instead of planning on rolling the $18,000 onto another 0% Balance transfer Card towards the end of the 18 month grace period, I made the biggest mistake of my newbie debt destroying career to date. I took that Zero % balance transfer card was paying $1,000 monthly. While this payoff amount jived with our original goals for the loans, I should have altered the payments to reduce the amount going towards a zero % loan, and put the money towards the interest bearing loans, like I suggest here. Over the last few months, I’ve been keeping my eye out for cards to roll the remaining $5,850 onto at the end of the 18 month term. There are now some issuers offering 43 month’s interest-free at press time!

It bears repeating- This is a risky strategy!

We were only comfortable assuming this risk because our additional monthly payments over the course of the grace period exceed the total amount transferred. The only reason a credit card company would offer you this option is because it hopes you will fail to pay. The APR on this card after 18 months is 21%. Ouch.

Bear in mind:

  • applying to refinance loans and applying for new credit cards may impact your credit score, which may in turn impact your refinance offers negatively. Try to look out for preapproved offers in the mail, or online, rather than applying directly.
  • Using a balance transfer also won’t get you credit card points.
  • Keep on the lookout for good bonus offers anyway.
  • Watch out for those annual fees!
  • Keep the terms of your offer in hard copy, in case you are charged something different.

If you can’t find a way to waive the 3% fee, is this still a good deal for you?

Disclaimer: I am not a licensed financial counselor of any sort. The opinions contained here are my own. Investing has implicit risk, past gains are no guarantee of future returns. You may lose money, including the principal. These opinions are my own, and are not endorsed by any of the armed services or the US Government.

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