How to Save Money with Balance Transfer Credit Cards

About 12 years ago, I started my first business with 0% loans from my credit cards. I had good credit and received at least 5 pre-approval offers per week. So I decided to use my good credit to finance my first business. I needed $20K so I charged all the start-up cost on my credit cards. When the first bills arrived, I applied for two new 0% balance transfer credit cards. When those promotional rates ended, I simply transferred the remaining balances to a new 0% credit card. Those offers saved me thousands in interest and helped me get my first taste of entrepreneurship. Without it, my life could have been very different.

I’m sharing this to illustrate that balance transfers can be a very useful way to save money if you are responsible and diligent. But I’d like to be very clear, I’m NOT advocating people do this as it was very risky for my credit, my business, and my family.

Today, credit card companies have added balance transfers fee and instituted other terms to discourage my past behavior. But savings still abound if you know how. Here are some tips and secrets to making the most from balance transfers credit cards.

• Different Rates for Purchase and Balance Transfers. One of ways credit card companies make 0% balance transfer rates profitable is that they charge a higher rate for purchases since they pay down the balance with the lowest rate first. The credit card companies hope you use your new card for purchases as well as the balance transfer. That way, all your groceries, gas, and other new purchases will be accruing interest while your payments are applied against the 0% offer. My suggestion to circumvent this pitfall is to use different cards for different activities.
• Balance Transfer Fees. Most credit card companies now charge a balance transfer fee of 3%. While this makes your balance transfer less valuable, a 3% unsecured loan is still great (assuming 12 months at 0%). In addition, many cards will have a max fee of $90 so if you transfer more than $3,000 you will essentially be lowering the balance transfer fee rate.
• Pay your Bill On Time. Many cards will immediately cancel your balance transfer rate if you are late on a payment. In fact many, credit card companies count on it.

Finally, use your credit responsibility. You should only go down this path if you know you have the self discipline to pay down your debts. Another word of caution is that balance transfers will most likely lower you credit score since you will have an inquiry for a new credit card also credit cards with high utilization will lower your score. But in many ways, credit is supposed to be used for your financial advantage. I personally don’t mind lowering my credit score temporarily for a few hundred or thousand dollars in savings.