Using zero-interest cards to pay down credit card debt?
August 2, 2019 7:48 AM   Subscribe

I've managed to slowly but surely rack up significant credit-card debt and was thinking of using a zero-interest card(s) to help pay down the debt. I was wondering if this is a good idea and what would be involved with this.

Long story short thanks to school, car repairs, interest, etc. I've slowly but surely found myself with a significant amount of credit card debt. I haven't missed any payments and haven't had any open inquiries for about a year now, but my cards are pretty much near the max which has affected my credit score (it's better than what it was, but right now it ranges from upper "Needs Work" to lower "Good" depending on whose agency/FICO report I use). I was thinking of seeing if I can transfer at least a majority of the debt to an interest-free credit card to pay down the debt, esp. since the interest on my current cards is responsible for much of my current credit card expenses. I was wondering what would be involved with this, average amount of time the zero-percent interest would apply, if the interest would be jacked way back up after said period is over, etc. If it's allowed, I was also wondering if there were any cards in particular that people could recommend.
posted by anonymous to Work & Money (23 answers total) 7 users marked this as a favorite
I recommend a credit union, they usually have lower interests and periodically offer lower interest balance transfer promotions and no balance transfer fees. A few caveats depending on your circumstances such as new accounts and # of inquiries does impact score depending on which bureau is calculating based on their own proprietary algorithms. Also, some credit unions require you be in their field of membership. Either qualifying through an employer, locality, belonging to a certain group or organization. Some may accept a small one-time donation to a charity.

Some people have used this technique you're considering and it has helped. However, be wary of getting further into debt and be completely sure of any restrictions or deadlines imposed. Example: 0% balance transfer for 6 months but if balance isn't paid in full you may be charged a fee and/or the interest you would have paid throughout that time. Also, be cognizant of what the interest would be after the specified period of course as you mentioned. It wouldn't be very beneficial if you open said card and are unable to pay the balance in the allotted time and the rate hike is untenable. Good luck!
posted by VyanSelei at 8:05 AM on August 2, 2019 [2 favorites]

There isn't a quick fix to get out of debt. And getting even more credit DEFINITELY is not going to help you. You need to cut up your cards and start paying them off while litterally never using them again until you owe nothing.
posted by KMoney at 8:06 AM on August 2, 2019

Doing a balance transfer might affect your credit score, but not for too long. It's unclear if you could get a new balance transfer card for a substantial amount with less-than-great credit -- some might cap you at like 1500 -- so it's worth checking out credit karma, doctor of credit and related forums where people report what credit profiles were approved for which cards/limits. Try to look for something with 18 months or more no interest
posted by shaademaan at 8:06 AM on August 2, 2019 [2 favorites]

The interest rate will almost certainly go way up after the introductory period is over. The 0% bit is an enticement to start using the card. Balance transfers are also subject to their own interest rates (see this list for examples).

Will you have the balance paid off before the 0% period is over, typically 12-15 months? If not, you might be better off trying the snowball approach to eliminating the debt.
posted by jquinby at 8:06 AM on August 2, 2019 [5 favorites]

Zero-interest credit cards are used by a good number of people to have some interest-free breathing room with their debt load, but unless you're certain you can pay off the card you transfer the debt to within the grace period, you're probably going to wind up with a higher interest rate at the end. And the zero-interest time is usually pretty short, so how much money are you saving overall by adding another revolving credit account to it?
posted by xingcat at 8:11 AM on August 2, 2019 [6 favorites]

For example, in the details for most of the cards on that list, there's an item like this:

0% intro APR on balance transfers for 15 months; 16.24%-26.24% variable APR after that; 3% fee on the amounts transferred within the first 15 months


If you transfer a balance with this offer, after your 0% Intro purchase APR expires, both new purchases and unpaid purchase balances will automatically accrue interest until all balances, including your transferred balances, are paid in full. There is a balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater

posted by jquinby at 8:12 AM on August 2, 2019 [1 favorite]

There are two dangers to this approach that you need to reckon with before adopting it, one mathematical and one psychological.

(1) If you're not going to be able to pay off the card before the zero-interest period expires, you have to make sure that the rate afterwards isn't going to be significantly higher. Especially if you plan to continue to use the card. You also have to do the math on any balance transfer fees, which can eat significantly into your savings.

(2) If you have trouble managing your credit, giving yourself additional credit may feel like a license to keep spending and thus lead to your getting further into debt. You can ameliorate this by canceling the first card, but depending on the relative amounts this may still lead to an increased line of credit. And then after the period expires you will still have basically shifted your spending to a more expensive card.

That said, this approach can work if the math pencils out and if you can be disciplined about it. But the former is objective; the latter requires that you be very honest with yourself. It's not Ideal Anonymous who will be making those decisions, it's Real You.
posted by praemunire at 8:15 AM on August 2, 2019 [10 favorites]

I have done this - the first time I got into balance transfers I ended up with more debt because my income and circumstances didn't change, it also gave me the sense of having breathing room and I continued to overspend. The second time I transferred my balances I was making more money and was able to curb my spending - I will be out of credit card debt within months and having the several balances turned into a single number and bill to pay has been very helpful, I like knowing my payments are primarily going to the principle of the debt and not being frittered by the interest. I've lowered the limits and closed the old cards as I pay my debt down, that is key. You need to stop using credit that you can't pay off monthly. I now have one low interest card that I reserve for emergencies and one daily use card that is paid monthly (I'm working on having savings built up too to avoid having to use credit for emergencies but easier said than done).

I'm in Canada and because of my high income and decent credit score was able to get a 24 month low interest deal through a low rate credit card deal site (greedyrates) - even the credit card representative was shocked at what a deal it was when I called to do the balance transfer. I'm making payments at a rate that will kill the debt before the timeframe ends. So good deals are possible but you have to look around online.

Generally you need to be impeccable with paying the minimums before the due date, NEVER use the balance transfer card for anything but making your debt repayments, and watch out for the end date or be ready to make another transfer (I get good transfer offers all the time now but am committed to ending the cycle). My credit rating took a beating for a while with my card jumping but since paying things substantially down has improved quite a bit.

So you're evaluating cards based on: length of time of the balance transfer offer, their requirements (income, credit rating), how much they charge to do the transfer (typically you are charged a proportion of the debt to do the transfer, mine was 3% of the total amount I was moving), what the interest rate becomes if you don't get the debt repaid by the end (usually 20% and sometimes they charge interest on the total balance transfer amount, not what's remaining). If you're lucky you will qualify for a transfer of the full amount that you owe. You can calculate how much you'll save on interest at different interest rates and monthly payments with online calculators.

Also note the card you apply for and want to move balances onto has to be owned by a different financial institution, you can't transfer a card that is owned by say American Express to another American Express card. You apply for a balance transfer online, find out if you're approved and for how much, and once you have your card you call them with your existing credit cards you want to transfer and they do it for you. At that point you confirm the relevant details with them and make sure you're set up to make payments and receive statements from them. I've found it fairly straightforward but for instance with the good deal I got I had to let them know the details I'd been approved for and they had to look it up and confirm it online, not sure if that's unusual.
posted by lafemma at 8:31 AM on August 2, 2019 [8 favorites]

Yes, these exist and are great ideas to temporarily avoid interest while paying off the debt. The people who say that it is better to go pay interest elsewhere are wrong. (This does not address any psychological issues with spending/debt, merely as a functional how to pay 0% interest for a period of time on a debt.)

0% APR, $0 balance transfer cards do exist if you have sufficient credit score. Nerdwallet has a specific section for this on their page. I used this when I had moving expenses restarting my life cross-country and have paid $0 interest over the past year while taking care of it. There is no negative, there is no trick. If I did not pay off the total amount when the introductory APR ends, I will start accruing interest on the remaining balance.

Many introductory rates range from 12-18 months. I used the American Express AmEx Everyday card like 5 down on that nerdwallet list and immediately cut it up so it is a 15 month 0% APR loan to pay off. Be sure to choose one where there is no 3% or higher fee on the transfer. These do require specific credit scores.

Good luck. I personally spend much less when I'm using a debit card and/or cash just because humans are not rational being though I enjoyed many thousands of dollars in rewards from specific credit cards/churning over the years. My credit score hovers around 790-800 if that matters.
posted by OnTheLastCastle at 9:04 AM on August 2, 2019 [7 favorites]

Yeah, I have done this, if you do it right there are no downsides. Transfer the balance, divide the balance by however many months your 0% interest is for (minus one to be on the safe side), make payments of that amount to clear the debt before the 0% interest expires. Some cards you can set up to do auto-payments for a specific amount; otherwise I'd advise setting up an autopay for the minimum amount and then going in and making a separate payment for the rest, just so you're covered in case you forget to make a payment.

Your repayment money goes a LOT farther if it's all going toward principal.

Just for emphasis, doing it right means:

1. You do not use the card for ANY purchases. The second you get it, cut up the physical card. It's just a place to park money while you pay it down. If you use if for purchases you run the risk of paying interest on those purchases for the whole time because unless it's 0% balance transfer AND purchases, they apply payments to the balance transfer part first and you're stuck paying interest on the purchases for the entire term.

2. You make sure the entire balance that you transferred is paid off before the introductory period is over -- hopefully just paid paid, but I've also transferred a balance again when I didn't make it all the way to paid. But the card needs to be zero balance by the time that intro period is up.

3. All payments must be made on time so you don't lose the 0%. Autopay will help you not screw this up.

4. Try not to take on any NEW debt while you're paying off debt (I know, this is the hardest one.)
posted by rabbitrabbit at 9:16 AM on August 2, 2019 [7 favorites]

I got out of $30,000 in credit card debt 20-ish years ago using 0% balance transfer cards. It took a long time, and I had to be extra careful because this was before CC companies had to apply your payment to the highest rate balance first.

I've used it strategically at other times when I've run up a smaller balance due or had a big upcoming expense. I'd also keep my eye out for 1% or 2% transfer fees in combination with a 0% 12-18 month promo rate, since usual transfer fees seem to be 3-5%.

In all instances I keep a spreadsheet with balance and expiration date of promotional rate.
posted by MonsieurBon at 9:19 AM on August 2, 2019

I've done this, but only in part:

I have two credit cards. One is the credit card I've had since I was sixteen and my father pretty much pushed me to get ("you need to build credit!"), and one was a card I got much later because of a good zero-balance transfer offer.

However, before I did the balance transfer, I noted when the zero balance would run out, and then calculated exactly how much per month in added payments I could make to this second card. Then I counted how many months I had until the zero balance ran out and used that to calculate how much that would be in terms of total payments.

So for instance: say the zero balance period ran out in 18 months, and I could afford an additional $75 per month in credit card payments. 75 x 18 = $1,350.00. So when I did a balance transfer to the zero balance card, I only did it for $1,350.00 (actually, I did it for a little less for safety's sake).

Most importantly: I continued to pay the same amount to my main credit card as well as making the added payments to the zero interest card. It went further because the reduced balance affected the overall interest rate. That's why I say to think carefully about your budget in added payments.

It didn't wipe everything out and it took the full 18 months, but it did bring things down some. I did that a couple times; I kept the zero-balance card past that time I paid it off and after it had reverted to a more traditional interest-bearing card, and on occasion I got a couple more zero-balance transfer coupons and used them, doing the same advance planning. These days I keep the second card active by using it to auto-pay my cable bill but otherwise I don't touch it, and I don't use my main credit card at all. (I'm on a hardcore debt paydown plan that should have me 100% debt free by June of next year, W00t)
posted by EmpressCallipygos at 9:21 AM on August 2, 2019

I did this to get out of around $6,000 of debt when I was first starting out on my own. The key for me was to divide the total balance by the time allotted to know how much I had to pay, and paying slightly more than that each month. I also stopped using any credit cards. I figured out my budget and took out grocery money and going out money in cash every paycheck. Way easier for me to see the trade offs when you look in your wallet and see a $20 that could buy this shirt but that means no money to buy pho.
posted by advicepig at 10:39 AM on August 2, 2019

As long as you have the self discipline to not spend the extra credit you get, it can work out well. You probably don't have good enough credit to get a card with a 0% transfer fee and 0% promotional interest rate (even with exceptional credit, there's few of those), but a 3% transfer fee beats what you're paying now.

I was also wondering if there were any cards in particular that people could recommend.

Discover used to be friendly about giving people with moderate credit nice promotional rates, I don't know if that's changed. Chase is pretty liberal with their credit.

Capital One is very stingy with their credit limits and relatively tough to get a card with.
posted by Candleman at 10:53 AM on August 2, 2019

Chase is pretty liberal with their credit.

Capital One is very stingy with their credit limits and relatively tough to get a card with.

Honestly the reverse. Cap One targets the subprime market. Chase is more upmarket. If Chase gives you a card, you'll probably get a higher credit limit, but that's because you're probably more creditworthy to begin with.
posted by praemunire at 12:05 PM on August 2, 2019 [1 favorite]

0% sounds really attractive if you're currently being hammered at typical credit card rates, and it is, but don't automatically rule out trying to consolidate all your debt into a personal loan from a credit union if you can get one at some more reasonable rate even if it's nowhere close to zero.

This loan calculator will let you compare the effects of various combinations of interest rate, repayment schedule and monthly fees, and give you a good idea of just how much difference even a few points off your present extortionate rates would make to the total amount you'd be paying out over the remaining life of your balance. It's a good tool to help you make an informed evaluation of any borrowing option that enters your orbit.
posted by flabdablet at 12:10 PM on August 2, 2019 [2 favorites]

You might also look at a personal loan from a CU or bank. Pros: cheaper interest, you can improve your credit score by adding this type of loan to the credit mix in your report. Cons: may be harder to get, not as flexible payment wise (ie, they are fixed, so you can’t decide to “just pay the minimum” sometimes).
posted by notyou at 1:41 PM on August 2, 2019

If you know absolutely that you will pay the card off before the 0% interest period expires, go for it. Keep in mind, though, if you do not pay it off in the time period, interest kicks-in retroactively. That is, the interest will be charged and compounded from the original beginning of the 0% interest period.
posted by Thorzdad at 2:40 PM on August 2, 2019

I too have done this to pay off about $15K of debt. It took a lot of discipline, and I had to make double-plus sure to pay off the balance before the promotional period ended. In total, it took me about 4 years. But it did save me a lot of money in interest. It can work if you are methodical and resist the urge to be impulsive.
posted by Autumnheart at 3:06 PM on August 2, 2019 [1 favorite]

I used Money Management International. It wasn't 0% interest but pretty close. They consolidated my debt, I auto-paid them directly each month and a couple years later it was all gone and now my credit score is excellent.
posted by pintapicasso at 5:07 PM on August 2, 2019

I did this to clear £25K of divorce debt a few years ago (before the financial crash, when credit card companies were virtually throwing cards at people). I did it exactly as rabbitrabbit said, except that I knew I couldn't pay all that amount off during the 0% period on the first card, so just before it expired I took out another 0% card and transferred the balance onto that (it was much easier to do that then, before the credit crunch). I was ruthless about paying as much as I could off it, especially with that last £5,000.

The key is to not use that card for any spending whatsoever. Don't think of the card as a line of credit, think of it as a bank loan that you have to repay.
posted by essexjan at 2:25 AM on August 3, 2019

All else equal, yes totally, you can pay off debt much faster using zero percent cards. Typically, they charge a fee for the transfer and then give you, like, 12-18 months without interest. So in effect you're paying 3 percent or whatever the transfer charge is as your interest for that year.

I'd move as much money there as you can, then pay minimums on that one while putting as much as you can toward high-interest balances. Take advantage of zero percent offers when they come up if you still have any not-zero percent interest. (Because they often give you this offer on balance transfers, once I transferred a balance from Chase to Bank of America then transferred a balance from BofA to Chase!) When the rate is about to expire, move it again.

Constantly getting zero percent cards will hurt your credit in some ways because it goes down a bit whenever you have a credit "pull." Sometimes a card you already have will give you this offer without doing a pull, so that's even better. On the other hand, you'll be getting additional credit, so your utilization percent will go down, and that will help your credit. And ultimately, paying off the debt is the best thing you can do for your credit.

Good luck!
posted by salvia at 9:45 PM on August 3, 2019

There are definitely people who do this. If you can stand spreadsheets there are a ton of them out there. I had a cow-orker who obsessed about this. He reaped every single reward and point and bonus.

But he refused to pay any interest and used the spreadsheet to do so.

There are definitely ways to play the system but they require a focus that lets you almost always meet deadlines.
posted by bendy at 12:19 AM on August 8, 2019

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