How And How Much You Would Earn From A 0% APR Offer: Part 1

Ok so you have a 15 month 0% APR offer, how are you going to squeeze the best out of it? In one of my previous post the title says “Free Money..“. Where exactly is the free money involved? Am I talking about all the interest you will save by paying only the minimum required instead of clearing off everything on your card every month? Absolutely not! Here is how you go about it and how much you will earn from such an offer.

I will divide this into a two part explanation. Part 1 below will deal with how to use such an offer if you have balances on other cards (or carry debts). In a couple of days I will post Part 2 which will explain how to use it if you don’t have any balances on other cards (or you are essentially debt free).

How to do it if you have balances on other cards?
If you application is approved for a card that gives you a 0% balance transfer offer, avail the offer immediately. Sometimes this facility is offered during the application process and allows you to enter information for the cards towards which you want this balance transfer to be applied. Give priority to the cards that are charging you high APRs (giving priority to cards that carry lesser balances and/or lower APRs for “mental satisfaction” doesn’t make any financial sense to me). If you are not able to do this during the application process, call up the credit card company and do it over the phone. This will work for most credit card offers. At times, you can request a check for the balance transfer amount instead of directly transferring to other credit cards. This is convenient if you have debts that are not on credit cards.

How much will you save?
To simplify matters, let us assume you have a card that’s charging you a 10% APR and you have a balance of $5000 on that card. If you plan to pay off this balance uniformly over a period of 15 months, it works out to approximately $356 per month. By the time you finish paying this off, you will have paid a total of about $5340 ! that’s $340 more than what you owed. If you pay off this $5000 debt using 0% APR offer, you will save about $340 !
If you consider repaying $5000 over a 12 month period in a similar fashion, you will need to pay about $440 per month. That works out to $5280 by the time you pay it off. So applying your 0% balance transfer in this case will save you $280.

To estimate your total payments use this calculator from Bankrate.com

Very important things before you get into this:

-Never use such offers to borrow more than you can pay off within the offer time period. In the above example, get $5000 from the offer only if you can pay it off completely in the 15 months (or whatever you offer time span is). Always check the regular APR that is applicable after the offer time period. If this APR is very high and if you don’t pay off the entire amount immediately after the offer ends, your savings can disappear quickly.

-Make sure you are never late on the monthly payments. You miss one monthly payment and your 0% APR will vanish before you can blink. You need to get organized if you want to play this 0% APR balance transfer game.

-Always read the fine print. Check if there are fees involved with the balance transfer offer. Most offers will not impose fees on the first balance transfer. However, some cards don’t allow it for free and will charge a 3% fee . Usually, there is a maximum limit on this fee ($75 ~ $100). I will write more about this in time to come.

-Always check if you purchase APR is 0% for the offer period. If it is not 0%, then never use that card for regular purchases till you completely pay off all the balance you transferred. Payments are always applied to lower APR charges first. If purchase APR is 0%, then go ahead and use it for purchases but keep an eye on how close you are to the credit limit.