Talking to a Zero Interest Balance Transfer Wizard
I hope you’re familiar with The Awl’s Tell Us More series, where they find interesting tweets online and then interview people to get the backstory behind the 140 characters. Well, two weeks ago my friend Colleen Kennedy tweeted this, and I knew I needed to interview her:
How do I deal with crushing debt? I am a balance transfer WIZARD. I'm currently paying exactly zero interest on the bulk of my debt. #fb
— Colleenky (@Colleenky) April 22, 2015
ND: Hi! Is now still a good time to chat?
Howdy doody! So. You described yourself as the “balance transfer WIZARD.” Can you explain how your zero interest balance transfer system works?
Sure. It’s not terribly scientific or data-driven, it’s just what I’ve been doing for most of my adult life.
I have three credit cards that I use. Two offer balance transfer promotional rates, and the third is just a fixed rate that’s relatively low—about 8.25 percent. The balance transfer offers usually give you an option of either getting a lower rate for a shorter term, or a slightly higher rate for a longer term.
I always go for the lowest rate. One card usually has a 0 percent offer, and the other usually has about a 3.99 percent offer. So, I try to keep things at the 0 percent rate as much as possible, obviously.
When I do a balance transfer, I try to remember to log in my calendar when the rate expires. At that time, I’ll transfer that balance to another card. Then, after a billing cycle, I’ll transfer it back to the 0 percent card.
Between the three cards, I have a substantial amount of available credit in order to absorb the debt loads I’m carrying.
What debt are you transferring? Is it a long-term debt, or monthly credit card debt?
It’s credit card debt.
When I was a young person, I spent money foolishly and ended up in way too much debt. But back around 2008–09, my ex-husband and I managed to pay all our consumer debt off. But then divorce, and quitting a job, and then moving three times got me back in debt. It has unfortunately become longer-term debt than I would like.
Solidarity fist-bump. Moving is the worst, especially with the expenses it racks up. So how much do you think you save in interest by doing these transfers?
I meant to do a back-of the napkin calculation before tonight, but I’ll do that now…
I’ve got about $20,000 in debt. At a modest 12 percent APR, that works out to $2,400 [savings] a year, if I can keep it at 0 percent.
I’m looking over my balance transfer terms now… Geezy Pete! For the 3.99 percent offer, the rate jumps to 24.98 percent at the end of the promo period. That’s almost $5,000 a year, for a $20,000 debt.
So your goal is to pay everything off before the rate jumps, right?
I wish. That’s impossible. My current schedule is to have it all paid off within about five years.
For now, the best I can do is to keep playing the balance transfer shell game and pay as little interest as possible.
No, sorry, I meant “pay off everything you transfer” not “pay off the entire debt.” Because if you don’t pay off everything you transfer, the rate jumps up, right?
Right, so I “pay it off” with a balance transfer check for another card.
Got it. You constantly move remaining debt around to the lowest available interest rate. Okay, so how do fees work? There are balance transfer fees, yes?
Yup. It’s generally a small percentage of the amount transferred, or a minimum fixed amount.
So, for my 0 percent promo, the fee is 2 percent of the amount or $5. The 3.99 percent card has a 3 percent fee with a $5 min, $75 max. On that 0 percent card, I’m saving net 10 percent in interest after the fee.
How much time does this take? A few hours a month? A few hours every three months? Five minutes twice a year?
Several minutes every few months.
Just the way things worked out, I have several “sub-balances” with rates expiring every few months, if that makes sense. The tricky thing is staying on top of the expiration dates. I missed a recent one and ended up paying 12 percent on that sub-balance for a couple of billing cycles.
What advice do you have for other people who want to play the balance transfer shell game?
Have multiple cards. Seek out cards that offer balance transfers. Make your payments on time!
1) If you don’t, you’ll lose your promo rate;
2) I don’t have confirmation of this, but I think you get better deals if you have a better credit rating.
The cards that I use, I’ve had for many years each, which I’m guessing is why I can get an offer of 0 percent interest.
Also, consumer credit laws have greatly helped with this. Credit cards are now obligated by law to apply payments to your highest rate first, after applying the minimum payment. So, when I got jammed up with the promo rate that expired on me recently, I just did a balance transfer for that amount plus the minimum payment, so I wasn’t stuck with that rate. Does that make sense?
It’s pretty awesome. ☺
Well, it’s all about the person who uses it. ☺
Ha! A skill born of necessity.