How to Take Advantage of Balance Transfers

This post explains how to take full advantage of the low balance transfer rates offered by many credit card companies. To figure out exactly how much money you can save/make by doing this, take 5 minutes to figure out the average interest rate you are paying on your debt. Once you know what you are paying now, you can get a better idea of how much you can save by dropping your debt interest rates massively by taking advantage of promotional balance transfer rates.

Getting the Cash out of Your Credit Card

If you look around on the Internet you will find that most promotional balance transfers apply not only to transferring balances, but also to checks written from your credit card (sometimes called convenience checks.) You can use these checks to transfer money from your credit card into your checking account – once it’s there, you can do whatever you want with it – maybe pay off your car loan using this new money that you are only paying 2% on. Better yet, you can use the money to invest in low risk securities.

Often times the best balance transfer cards do not come with the luxury of letting you write checks from the card at the promotional rate – you can get convenience checks with all credit cards, but often you will have to pay the full interest rate of close to 20% on money extracted via these checks. You can easily deal with this by getting 2 cards, one with the lowest interest check rates you can find and one with the best overall balance transfer rate. Simply write checks out of the first account and then pay that account off using the ultra low interest balance transfer card.

Examples of Profiting from Balance Transfers

Profit by Saving Money on Debt

Say you purchased a car for $12,000 and intend to pay it off over 5 years. If you were to use a traditional car loan at 8% interest, you would end up paying $2,599 in interest by the end of the 5 years. If, on the other hand, you decided to pay for this car using a promotional balance transfer rate of 3% (which is quite easy to find) you would pay just $937 by the end of the fifth year – a savings of $1,662! To pull this off requires a little work, since promotional rates typically last around 12 months, you need to be ready to sign up for the next card with a new promotional rate at the end of each year. In the event that you cannot find one – you simply go get the car loan – this is not ideal, but at least you would have benefited from the low rate for the first year. Typically you can find promotional rates of well under 3% – saving you even more money. Be careful! these credit cards typically only require you to make very small payments during your promotional period, make sure you don’t forget to keep making the payments that will allow you to have the car paid off in 5 years!

Profit by Earning Interest on Your Balance Transfer

Say you apply for the MBNA Platinum Plus MasterCard and get the promotional rate of 0% for 15 months with a credit limit of $10,000. Write yourself a convenience check and transfer the full $10,000 to your High Interest Savings Account at 2% interest annually (ING Direct TFSA for example.) If you leave the money in there for the 15 months you will make $252.94.

Profit by Investing Your Balance Transfer Funds

Obviously you can take this to the next level and invest in something with a higher return like a 5 year GIC – but you had better be ready to hunt hard for very low interest balance transfer rates as it comes time for you to shift things around. In the event you have cannot find a low enough rate, you would be forced to pull your GIC, forfeit the interest earned, and pay off the card – not the end of the world, but not ideal

Of course you can always take things to the next level and use the cash from the balance transfer to invest in stocks, bonds, mutual funds, real estate, etc, but as always, be careful. If you lose the cash in the market, you will either have to find a way to pay off the card with other money of yours or be ready to find another ultra low interest rate card/account to pass the debt onto.