My Personal Finance Journey

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The Value of A Great Balance Transfer Deal

Contributed by mm | February 28, 2006 8:06 PM PST

In my monthly report for January, I revealed I had over $25,000 in credit card balance from various balance transfer deals. Before January, most of my balance transfer activities were related to limited-time 0% APR offers from Citi, Discover and alike. Such 0% APR balance transfer offers are really no brainer: for every $10,000 one can borrow at 0% APR, putting the money to work in a high-yielding savings account like ING Direct (currently running a promotion that gives 4.75%) can easily yield risk-free $400 or more in every 12 months.

In order to get those sweet offers, the easiest way is to sign up for new cards. You don't need to look very far for such deals:

Citi® Platinum Select® Card: 12-month 0% APR on purchases and balance transfers; no annual fee.
AT&T Universal Platinum Card: 12-month 0% APR on balance transfers; no annual fee.
Discover® Platinum Clear Card: 12-month 0% APR on purchases and balance transfers; tiered cash reward; no annual fee.

If you are not in the mood of opening a new account just for the sake of some quick cash, you can also look at your existing accounts. What I usually do is to surf balance transfer offers for my outstanding cards every months -- most credit card issuers promotes such deals online -- and pull the trigger when I see a fantastic deal.

These deals don't surface very often, but last month, Citi presented to me such a deal
on my Citi® Driver's Edge® card that I cannot refuse:

• 1.9% lifetime APR on balance transfer until paid in full
• Balance can be transferred to your checking account directly
• No balance transfer fee (and $5 reward for every $1,500 transferred)
• Monthly minimal payment is 1.5% of the outstanding balance

Why is it a good offer? 1.9% isn't as sexy as 0%, but "lifetime" is the key. By borrowing at 1.9% and lending to institutions like ING Direct or EmigrantDirect (and many other risk free channels) at about 4.50%, one can easily earn about 1.5% per annum on any transferred balance, and even more if Fed continues to hike the rate. (The math: one will pay tax on the interest income of 4.50%, but can claim no deduction on the 1.9% interest you will pay. For people at 25% tax bracket, the net gain is 4.50% * 75% - 1.90% = 1.475%.)

I quickly phoned Citi to transfer my credit limit in other Citi card to this card with the golden offer, and pulled $11,000 from Citi. A quick spreadsheet shows if I pay the monthly minimal and never miss a due date, I stand to make $600 after-tax over three years. (And if I stick to the minimal payment, I will still be paying off this debt in my 40s -- this is not a bad thing if Citi will still charge me 1.9%!)

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This Post Has Received 12 Comments. Share Your Opinions Too.

Jonathan Commented on February 28, 2006

Come on Citi, you need to start offering 0% for life =)

HELOC Commented on March 1, 2006

I've had 2 Discover "0% for life" cards for over a year and just received a mailing for the same offer - so it is still availalble.

The only hitch is that you need to make two purchases each month to keep the 0% offer in place.

This I do with $0.25 breakfast bar purchases at the local convenience store. The interest rate on the purchases is 9.99% which isn't too bad in itself.

All in all a great deal that I figure saves me about $1,600 a year in interest on home improvement debt I moved from my HELOC.

Also reduces the loan balance a lot quicker since virtually my entire payment goes to principal.

Mike Commented on March 1, 2006

How do you go about transferring the money to INGDirect or another savings? Does the credit card company give you checks that you write to whomever without a fee? I love this idea, but have always been very cautious when dealing with credit card companies.

Chris Brunner Commented on March 1, 2006

Doesn't this hurt your overal credit position? Opening new accounts and closing older high interest accounts hurts your established length of open credit. I understand the stance of you saving on interest and even earning a return, but is it worth it?

Maybe if you will NOT be making a large financed purchase in the next year where a lower credit score will cost you thousands.

2million Commented on March 1, 2006

Probably obvious for most, but might be good to point out this means not making any purchases on this existing credit card. Any payments to the credit card would be used to pay down the balance transfer before they are used to pay down purchases (which would have a higher APR)- not good to do if you plan on leaving this as a primary card.

Latin Guy Commented on March 1, 2006

MM, since you are overseas, how do you apply for these offers, since you have to have a valid U.S. address to be eligible? Let me know, since I am currently relocated to Brazil.

CPA1298 Commented on March 1, 2006

I was skeptical of the credit card arbitrage game at first, but I have been at it 3 months, doing the following -

- Pulling $14,000 (credit limit of $16,000) in cash via balance transfer checks from Citi Premier Pass (they offered to make the checks out to me) at 0% for a year, with no fees

- Opened a $10,000 credit limit Visa with US Bank, 0% purchases and balance transfers, no fees. I transfer the monthly balance from my cashback reward card to this card.

The only downside I've had is that my credit score fell by 30 points (772 to 742); not too bad for taking on an additional $26k in credit card borrowing capacity. A word of caution: read the card offerings in detail, as they are almost certain to contain fees, etc. that will trip you up (three favorites that I've seen 1) balance transfer fee of 3%-5% of the amount transferred 2) applying payments to low-interest balances first (this one was mentioned earlier) and 3) confusing 'balance transfer checks' with 'convenience checks' - convenience checks fall into a far higher interest rate and fee category.

If anybody has any ideas of where I can get some no-fee balance transfer checks made out to myself, please let me know, as I have an impending car purchase to make in the next couple months, and I used the $14k from Citi to fund my wife and I's 2005 and 2006 Roth IRA.

MM Commented on March 1, 2006

Mike: Yes, Citi actually allows me to do an ACH transfer to put the money to my checking account.

Latin Guy: I no longer apply for new cards now :-(

2million Commented on March 2, 2006

mm, Really? I asked about doing this with Citi on my last balance transfer and the operator said they couldn't do an ACH transfer for "money laundering" reasons - I had to get a check sent to me.

RJ Commented on April 11, 2006

What's the difference between and ACH and getting a check sent to you. Yes it's slightly more inconvenient, but once you receive a check you can then do an ACH transfer from the bank you deposited in into another account if need be or just cash the check and send a deposit to your savings account etc.

green Commented on April 13, 2006

All sounds good, but I would like to know where you get the money to pay off the minimum monthly payment if you have 2 cards with 10k balance. any recent cards to apply for

Payday Loans Commented on May 18, 2006

I now have over $14,000 in credit card debt.

Read More ... 140 Posts In The Same Category

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