Ask Stacy: Should I Transfer to a Zero-Interest Credit Card?

Photo (cc) by pedist

Here’s a recent email from a reader who’d like to pay less interest on her credit card balance. In fact, she’d like to pay zero…

Hi Stacy, love the show.

I just saw your article about no-fee credit cards and I was wondering: If I had $10,000 worth of credit, and I wanted to avoid paying any more interest on it, could I use one of these “no-fee” cards and transfer the credit, with the aim to eliminate the $10,000 credit in one year before the “no-fee” period expires? Does that make sense? Is this possible?

Thanks in advance,
Millissa

Glad you love the show, Millissa!

The first thing we need to do is distinguish between credit cards with a zero-percent-interest promotional rate and “no-fee” cards. We’ve written about both lately. Credit card expert Jason Steele wrote Zero-Percent, Fee-Free Credit Card Balance Transfers Are Back and also 5 Great Credit Cards With No Annual Fee. The former is about credit cards that offer a zero-percent interest rate during a promotional period. The latter is simply credit cards that don’t charge an annual fee.

While she didn’t explain it perfectly, I’m sure what Millissa is asking is if it’s possible to transfer a $10,000 balance from an existing card to a new one offering a promotional rate of zero percent for one year.

Moving balances from one card to another is called credit card surfing, and I’ve been doing stories about it for years. It’s definitely possible, and many people do it. In fact, some people even take out zero-percent credit card loans and attempt to earn interest on the money in a high-wire act called credit card arbitrage. But should Millissa go down this road? The answer to that question depends on her personality and position.

Beware transfer traps

It’s obvious that zero percent is better than 15, 18, or whatever percent Millissa is now paying on her $10,000 balance. But transferring to a zero-percent promo rate can be fraught with potential peril. So there are things she needs to be aware of…

1. Are you done yet? Whenever anyone asks me if they should employ some technique to deal with high-interest debt – like taking out a home-equity loan, consolidation loan, or as in Millissa’s case, a zero-percent-interest credit card offer – my first question is, “Why do you owe this money in the first place?”

The response I want is that it came from an unavoidable, isolated incident – like a health or job issue. But if you’re in debt because you’re living beyond your means, fix that problem first. Otherwise, a lower-interest alternative is a band-aid, not a cure.

If you spend more than you make, paying off an existing balance by taking on new credit will only postpone (and make worse) the ultimate day of reckoning. So if you’ve got a spending problem, deal with it. If it’s severe, go to a credit counselor. If it’s manageable, read articles like 5 Steps to Building a Budget That Works.

Your goal should be to destroy debt, not juggle it.

2. How’s your credit? The best deals on rates, terms, and everything else relating to credit cards – including balance transfers – go to those with the best credit. From Jason’s zero-percent post referred to above…

Chase (Slate card) gives the best deal – a 12-month, zero-percent promotional rate for new purchases and balance transfers – to applicants whose credit qualifies them for “Elite” or “Premium” pricing. Those who receive their “Standard” pricing will still have the opportunity to transfer balances with no fee, but they’ll only receive a six-month promotional financing period.

Exact terms will differ with different offers, of course, but the point is that you may not receive the offer you’re counting on if your credit isn’t stellar. Wouldn’t it be a bummer if you only got a few months of zero percent, then the card you transferred to reverted to a rate higher than the one you left?

Step one before you apply for any type of credit is to go to annualcreditreport.com and download a free copy of your credit history. Even better, go to myfico.com and pay $20 for an official copy of your credit score. If your score is over 760, you should be in the sweet spot. But before applying for the zero-percent card, find out the credit score you need to get the best terms, either by reading the fine print or by calling and asking.

Want to improve your credit score? Articles like 3 Tips to Improve Your Credit Score – Fast can help.

3. Are there transfer fees? The point of Jason’s post Zero-Percent, Fee-Free Credit Card Balance Transfers Are Back is that a few issuers are now offering no-fee transfers of credit card balances. Many more will charge you a fee of up to 5 percent when you transfer a balance onto their cards. Some cards also charge fees to transfer your balance out. A 5 percent fee on a $10,000 balance is $500. So before you start any transfer process, make sure the cards you’re transferring both from and to aren’t going to nail you.

4. Will your new charges on the card also get zero percent? Sometimes the balance you transfer to your new card is charged the promised zero percent, but any new unpaid charges are charged the regular interest rate. Read the fine print or ask.

5 Are there any other catches? For example, if you’re one day late on a payment, does your zero-percent interest rate disappear? The only way to find “gotchas” is to look for them in the fine print.

The bottom line

Banks aren’t in business to give people money at zero percent. The reason they make these offers is the same reason casinos offer you free drinks and a $4.99 buffet. They know that a certain percentage of the people capitalizing on their “generosity” will end up capitalized on instead.

So you tell me, Millissa. Are you the type that can take advantage of the house, or will you become a person who’s taken advantage of? If you’ve got your ducks in a row, go for it. Just remember who you’re dealing with, read the fine print, and select the card carefully.

Have you ever transferred a balance? Help Millissa and our other readers by telling us how it went on our Facebook page.

Got more money questions? Browse lots more Ask Stacy answers here.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

Small Splurges That Make It Feel Like You’re Living Large
Small Splurges That Make It Feel Like You’re Living Large

Cutting costs is the shortest path to financial freedom. However, there are times when a little spending can produce big returns.

14 Things We Buy and Then Almost Never Use
14 Things We Buy and Then Almost Never Use

Save your money. These items seem alluring but they often end up as coat racks and dust magnets.

Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You
Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You

Streaming TV might sound like the antidote to sky-high cable bills, but cutting the cord is easier said than done.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Longer Trips to These Stores May Raise COVID-19 Risk
Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.