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How to Avoid A Major 0% Balance Transfer Credit Card Mistake

Published 3/16/08 (Modified 3/9/11)
By MoneyBlueBook

Warning: Before you apply for a 0% balance transfer credit card offer, you need to read and heed the following words of advice. If you want to know how the actual zero percent balance transfer process works, please read this guide to making balance transfers as well - in tandem with the article below. Both will help better educate you regarding this powerful but rule-laden process.

Using A Balance Transfer Card As A Financial Safety Net

While some debt reduction pundits discourage the use of balance transfer credit cards, I respectfully disagree with their blanket rejection of this invaluable financial tool. While I concur that the use of credit cards is not for everyone and misuse can lead to out of control credit card debt, I think the responsible use of credit should be viewed as an integral aspect of debt reduction and sound financial planning.

I myself have relied and depended on 0% balance transfer offers in the past to get through periods of financial difficulty. There were several times in my life when I incurred major unexpected expenses that I was unable to financially cover on my own - examples such as large unanticipated tax bills and emergency car repair charges. Other times I simply did not have the cash flow available to pay off my monthly bills despite having a stable, entry level job at the time. Rather than resorting to something reckless like stooping for a high interest payday loan, I applied for credit cards that offered introductory 0% APR interest rates on 12 month balance transfers. With the infusion of instant money on 0% balance transfer credit, I was able to weather the financial storm, rather than relying on the charity of family or friends. Balance transfers help you bail yourself out of difficult times but still maintain that key financial independence, and doing so in a responsible and planned out way.

Using A Balance Transfer Card To Make Money and Profit

While I've used 0% balance transfer offers for emergency parachute purposes, I've also used them to earn free interest money. By depositing the 0% balance transfer funds into a high yield savings account, I was able to make money from what was essentially zero interest loans. Whether your need or want for credit depends on a single card or multiple card offers, the risks and pitfalls with balance transfers remain the same. Balance transfer cards are certainly very lucrative and powerful financial tools, but they have rules that must be followed and adhered to.

Here are some of the key mistakes and pitfalls to avoid, that all balance transfer enthusiasts must pay attention to. These are all key balance transfer components that have a high tendency to trip people up. Proper knowledge and credit education can help cardholders avoid turning their balance transfer lifelines into balance transfer disasters.

1) Some 0% Balance Transfer Offers Have Balance Transfer Fees - When you apply for a balance transfer offer, there are two important components you must find out - the balance transfer APR interest rate and the balance transfer fee, if any. The interest rate is the percentage rate that you will need to pay the card company if you carry an unpaid credit balance from month to month. With new introductory 0% balance transfer offers, the interest rate should be zero.

The balance transfer fee is the one time cost of executing the balance transfer transaction. The usual fee percentage is 3%, but many cards set maximum fee limits of $50-$75 for the one time charge. However there are some special balance transfer cards that offer 0% interest rates with no balance transfer fees. The terms and conditions of no balance transfer fee cards usually expressly indicate that pursuant to the 0% balance transfer offer, the transfer fee is waived. Those types of offers are perfect for consumers looking to transfer high interest debt to a zero percent credit card and for those looking to weather a financial emergency, because it's possible to avoid all upfront or subsequent fees completely. On the other hand, those looking to profit or make money from balance transfer arbitrage usually don't mind the balance transfer fees as much, because their goal is to maximize their total 0% credit line.

If you don't want to go through the trouble of examining the detailed fine print of all available credit card offers, I've done most of the work for you:

2) Keep Track of the Balance Transfer Duration and Expiration Date - Along with the interest rate and balance transfer fee, savvy consumers need to know and remember the length of the 0% introductory period. The length of most promotional offers is usually 6-12 months although the period varies based on individual card terms. The introductory balance transfer clock usually starts when the first balance transfer request is made. So long as there are no credit card term violations such as a late monthly payment, the 0% interest rate remains in effect for the duration of the promotional period. Once the transfer has been made, I highly recommend calling or emailing your card issuer to request the exact expiration date of the balance transfer. I suggest that you circle the target date on your calendar. I personally use my Yahoo email calendar function to set online reminders for myself a month and a week before balance transfer expiration.

3) Don't Make A Cash Advance Instead Of A Balance Transfer By Mistake - Do not make the very critical and significant mistake of requesting a cash advance rather than a balance transfer. While they may seemingly operate in similar ways, they are not the same. A cash advance is initiated when you cash one of those credit card convenience checks that the card issuer occasionally sends you, or when you use your credit card at an ATM machine to access your credit limit. Always avoid cash advances if you can because unlike 0% balance transfer offers, a cash advance usually has very high fees and high interest rates. If you make a cash advance, it effectively destroys the benefit of your introductory 0% balance transfer offer. Always make sure and verify that it is indeed a balance transfer being made, and not a cash advance.

It should be noted that certain credit card issuers like Citibank do issue balance transfer checks. Rather than requiring from you a credit card balance to transfer, Citibank will upon request, simply send you a balance transfer check for the entire balance transfer amount you request. The check can be deposited into any bank account you wish like any ordinary check. While it may resemble a cash advance convenience check, it is labeled and categorized differently.

3) Always Make Sure You Pay Your Monthly Credit Card Bill On Time - This point is absolutely critical. Should you accidentally or intentionally default or fail to pay your monthly credit card bill on time, your introductory zero interest rate will reset at much higher rates. Normal credit card interest rates vary, but they usually average around 10-20% APR give or take. The rate might not seem like a lot but when you are talking about balance transfers, imagine defaulting on a $10,000 balance transfer offer and suddenly having to pay back the entire amount immediately or face significant interest fees. Thus, you want to always make sure you pay off your minimum balance on time every month. I cannot overemphasize enough - Do not fail to pay or make a single late minimum payment. In the event you are late, there is a small chance the card issuer may be generous enough to restore your introductory 0% balance transfer rate as a courtesy gesture. It worked for me at least once in the past, but then again, I had a blemish free payment history prior to that.

I highly recommend setting up automatic debit payments to have the minimum balance instantly withdrawn from your linked bank account when the monthly balance comes due. Setting upon account alerts is also a smart idea. You should always review your monthly statement regularly to check for any unintended or unknown charges, just in case.

As an additional reminder, if you are transferring a balance from another credit card, make sure the old card's balance has been completely paid off and the bill has been set to zero before you stop paying it. Sometimes it takes a week or more for the balance transfer request to be made effective.

4) The 0% Balance Transfer Offer Does Not Extend To Purchases - While the credit card balance you transfer to the 0% card will carry the introductory zero fee rate, subsequent purchases using the credit card will not enjoy the same 0%, but rather will be applied towards the card's ordinary interest rate for purchases. If you are using the card primarily as a balance transfer card, I recommend that you remove it from your wallet and place it at home so that you don't accidentally use it to swipe a purchase. I always attach a "do not use" Post-It warning on my active balance transfer cards at home so I don't use it by mistake. If you are interested in credit cards that offer 0% APR interest rates for both balance transfers and credit purchases, you will need to apply for those that have that particular promotion.

5) Payments Are Applied To Lower Interest Charges First - Almost all balance transfer fine print will specifically indicate that payments made by cardholders towards their card balance will be applied to lower interest charges first. This means that when you make a payment, it goes toward the 0% portion of your credit card balance first, not the higher-rate portion for purchases. This is crucial because it is completely counter-intuitive and opposite of what cardholders would logically do.

Let's say you transferred a balance of $5,000, then made a purchase for $100. You will now be paying the regular credit card interest of 15% on that $100 item until the $5,000 balance is completely paid off. This is a balance transfer killer that you absolutely want to avoid since you will now be compelled to pay off the entire balance in full immediately or face recurring interest charges. If you want to make 0% interest purchases, then seek a credit card that offers 0% for both purchases and balance transfers.

6) Don't Rush To Pay Off Your 0% Balance - You should try to take the most advantage of the interest free grace period offered by the balance transfer offer by putting the extra cash in a high yield savings account. At the end of the 0% grace period, you should then withdraw the money from the bank account and use the accumulated money, plus the interest it has earned, to repay your credit card bill. After paying off the balance, there should be leftover interest money - profit from taking advantage of the 0% balance transfer offer.

7) Don't Cancel Your Balance Transfer Cards After The 0% Introductory Grace Period Is Over - While this one is merely advisory and not a crucial mistake like the ones above, I think there are a few solid reasons why you shouldn't cancel your card after the balance transfer period is over. You should keep the card active because sometimes the card issuer will try to attract you with another complimentary 0% no balance transfer fee offer. Another reason is that closing your card account has the noticeable effect of dropping your FICO credit score because it lowers your total credit line available, and increases your credit utilization ratio. If you insist on canceling the card, at the very least you should roll the credit limit onto another card by the same credit issuer. That way, while you reduce the number of cards, you still maintain the same credit utilization.

Follow The Above Rules, And You Will Succeed With Balance Transfers

Another thing you might be wondering is - if these balance transfer deals are truly free and cost nothing, how do credit card companies make money from these type of offers? The answer lies in the fact that statistically, some balance transfer cardholders will inevitably fail to follow the card offer terms and wind up making one of the key blunders described above. Credit card issuers know that some consumers won't pay attention to the details and will end up paying penalty fees and interest.

Remember to play by the credit card rules to fully profit and benefit from lucrative 0% balance transfer offers. Using a balance transfer is not really meant to be some clever trick or credit card hack - so long as you pay attention to details and educate yourself thoroughly, you too can learn to utilize it as one of your financial planning tools, just like me.

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43 Responses to “How to Avoid A Major 0% Balance Transfer Credit Card Mistake” 

  1. Brian Baker says:

    I have an existing Citibank card that i've been using for years, that recently offered me 0% interest on a balance transfer. I quickly moved my credit card debt from one account to this one. I then have read about NOT spending on balance transfer cards. I already had a balance of 98.74 on the Citibank account when I added my balance transfer to it. Since I have not charged anything to this account AFTER the transfer, are these purchases exempt from the high interest rates? Basically, will my next payment go to pay off my previous purchases first, then apply to my balance transfer? I'm fearful that I should have paid what little balance I had on that card before transfering my balance. Any input would be appreciated!

  2. Newman says:


    How did you proceed? Did you receive any helpful advice? I'd love to know how things worked out for you because I am in somewhat of a similar situation as you described in your post on 11/20/08. Hope things went well for you.

  3. Dean Welsh says:

    I have an offer of %4.00 for the life of the loan. My debt is 10k (had to buy a new roof, couldn't put it off and didn't have the cash on hand). I was reading the fine print on the card offering the deal (US Bank). It stated I must make one purchase per year or there would be an annual fee to use the card. And, then of course - I was concerned about Rule #5 above. So, if once a year I spend ten bucks on the card to avoid the annual rate (I don't know how much it is - I will call and talk with them about this soon), I have the potential of this ONE ten dollar purchase costing me a TON of money in interest (purchase rate 13%). Is that correct? Rule number 5 confuses the heck out of me. Thanks.

  4. Raymond says:

    Dead Welsh,

    I'm presuming your US Bank balance transfer credit card does not set a minimum purchase amount for the requirement that you must make at least one purchase per year. If that's the case, then I'd advise you use the card on the cheapest product you can find....something like a 5 cent candy if that's possible. The lower the purchase amount, the less likely the compound interest effect of the APR interest will really harm you.

    However, even if you carried a sizable balance at 0% APR and added a few purchases of $10 at the normal credit card interest rate, the $10 alone isn't going to compound all that quickly unless you drag it out for years and years. It'll probably take more than 15 years for that original $10 to add up with interest to exceed more than $100.

  5. AKB says:

    I have approximately 15,500 in total credit card debt on two cards with 14,500 on one card with about half of that at 0% until November. I have struggled with this for a long time and really want to develop a plan to pay this off within 2-3 years. I am confident that it can happen, but I need some advice on how to proceed. Is it feasible to split the 14,500 between two cards-perhaps one being an existing card? Also, would it be wiser for me to seek out a low interest rate for the life of the loan because I know that I will not be able to pay this off in a year? I'm concerned that I will not be able to transfer the entire balance onto another card. I assume it is not possible to request the transfer be of the dollar amount not at 0%? Any advice would be appreciated.

  6. Raymond says:


    It would help if I knew what your FICO credit score is. A high FICO score ensures a much higher likelihood your 0% balance transfer credit card applications will be approved. A high credit score also ensures that the hard credit checks associated with repeated credit card applications will not substantially impact your credit score health.

    But in general, I would recommend sticking with 0% APR credit cards if possible. Also, keep your eyes peeled for those Discover card lifetime balance transfer offers floating around. They offer 0% for the life of the transfer, except there is a catch...you have to make a few purchase transactions every month - transactions that incur interest at the higher purchase rate.

  7. AKB says:

    Thank you for the information. My FICO score is 765, so am I to assume that it will be easier for me to obtain the 0%? Also, you do suggest sticking with the 0% even though I will not be able to pay off the balance in 6 months to a year? Of course I am worried about my score going down because of repeated requests. I do have an existing card which is offering me 0% until November, or 2.99% until 8/2010. There is not enough credit on that card to put the whole balance, but a good portion of it. Of course there is a 3% transaction fee...Trying to decide, but it's so confusing sometimes. I will keep my eyes open for the Discover offer.

  8. Kristen says:

    I don't understand what you mean by putting the extra cash in a savings account. What extra cash are you talking about? Are you talking about the interest that you have been charged on the original card before the balance transfer? Are you talking about taking out some cash advances off the original card and then transferring to the 0% interest card? Could you please give me some kind of scenario so I can see what you're saying and what I need to do in order to benefit from the same situation? Thanks.

  9. Shadow says:

    I'm hoping someone could answer this question.....

    I read about the Citicard Balance Transfer Checks. I have some of them laying around offering 2.99% until Nov 2010. I have about $8100 I'd like to transfer but the catch is that its on my husbands Citicard. Can I write the check to him directly, and then have him pay off his credit card from his bank account? I can't see how Citi could block that but if so I'd really like to know how ahead of time :)


  10. crossroads says:

    I just got a letter from Chase saying they are increasing my minimum payment percectage to 5%. It was 2%. Now my payment will increase from $451 to $1112. There is no way we can afford such a payment. We have a large balance of $22000 which I have worked hard at paying down (paying more that the minimum due and on time). Now I don't know what to do- my increased payment starts in August. I'm looking into doing a balance transfer but I don't think any credit card co. would allow me to transfer such a large amount especially in today's credit crunch. We have a good fico score of about 750. Does anyone know if this is possible or know of any credit card co's that might be willing to let us transfer that much? If not, I don't think it would be worth it to just transfer say $5,000 of it. My payment on the rest would still be too much. I hope someone can give me some advice.

  11. Dean says:

    I'd call them. Tell them what you can afford. Tell them you want to pay them in full but you simply cannot afford their new minimum. If they don't work something out with you then you could talk with an attorney or credit counselor. Or, just say SCREW THEM and never pay them a penny. I doubt they will sue you. And, even if they do - so be it. There are no debtor's prisons in America any more. So, 'it will ruin my credit score' you say? Who cares. Who really needs it. The country was FINE/BETTER before all this credit score/FICO BS started anyway. It is just a paper-tiger club that they try to scare you with. THEY ARE CROOKS. They need BILLIONS to stay afloat yet try (and do - if we let them) to rape the little guy (US TAX-PAYERS that are keeping them afloat....)

    REVOLT! Don't pay the crooks. Unless and until you and I start receiving our monthly dividend checks in the mail as partial stock holders of the business since it is our tax payer dollars that keeps this crooked, evil beast alive . . . .

  12. crossroads says:

    I have an update. We called Chase today and I really expected to hear that there is nothing they could do for our situation. But to my surprise, the service rep transfered us to a dept that works with customers who are eligible but it does require that you close down your account. They offered to give us a fixed interest rate of 6% with payments over 5 yrs. Our payment will be $438 every mo. This sounds great and a far cry from the $1100 it would have been. They are not a third party and are called Proactive. They said that because we have such a good credit history they could help us. I asked if it would hurt our credit report to do this and she said no because we would be voluntarily closing the account and it would still show up as current payments with Chase. So please call Chase to see if they can work with you first before you do anything else, especially if you have good credit and made payments on time with Chase. The number Chase transfered me to is 1 800 404 6220. But call the number on your bill first and find out if you are eligible. Hope this helps some people.

    Again, we are still thinking about it but we are pretty sure we are going for it since going to the CCCS (credit counseling) might involve them keeping your credit cards except one for emergency and would show up on your credit report as a third party making the payments for you. Otherwise, than that, they look to be a great co. to work with and a good choice if you go that route. They are recommended by Suze Orman, the financial guru.

  13. Cheng says:

    i just wanted to know if you believed in the ATM card with zero balance since one year at the same time it was already expired and still can withdraw money from ATM machine. the type of account is SAVING not CURRENT please help me to know the rights of the card owner and what is the risk. thank you and have a nice day..

  14. OLITA says:


  15. Russ says:

    What are the impacts of the credit card laws that go into effect in February 2010. There are many analysts predicting that we are nearing the end of zero percent introductory offers because of the new laws signed last august that dont fully go into effect until february.

    From what i gathered the laws will require that new accounts cannot have a promotional APR raised within the first years. Since banks offering zero pecent intro rates were counting on some people defaulting and taking a higher interest rate, does this mean the end of the zero pecent balance transfer game?

  16. Raymond says:

    Well Russ, I don't necessarily think balance transfer cards will completely die out 100%, as I truly believe credit card issuers will ultimately find a way to adapt and restructure their 0% APR offers to allow consumers to continue taking advantage of such features while also allowing themselves the ability to profit in some way.

    But the biggest thing that the new credit card rules will do is severely restrict the credit card issuers' ability to direct card member payments towards lower interest rate balances first before applying them towards higher rate balances. Their ability to do this was one of the reasons why balance transfer cards were so profitable for the issuers and so widely promoted during the heyday. Not being able to restructure credit card payments in this way will severely limit the issuers' incentive to offer balance transfers in the future.

  17. lesley says:

    Hi Raymond, I just applied online for the virgin offer of 0% interest for 16mths on balance transfers and intend to use it immediately for paying off my debt. I am confused as after completion it says congratulations you are accepted and you now have ����2000 credit. Does this mean i now "owe them my previous debt from my last card supplier but I also have ����2000, credit on top? also what about my other card that i transferred from, i am assuming i owe them nothing any more , will i still have my credit that i had originally available to spend ? (not that i intend to.)

  18. Sunil says:

    Thanks for the great article Raymond. I received citibank balance transfer checks in the mail. Instead of depositing the checks in my checking account, I wrote a check to a friend as I owe him some money. I guess that would still be treated as a balance transfer right? My friend deposited the check in his bank account today. It's still in process. I talked to Citi customer service and they mentioned if the bank takes the checks that should be fine.

  19. Miko says:

    I am looking to transfer a balance on a high interest credit card(CaptilalOne) to a low interest credit card (Citibank). My question is; should i close the high interest credit card after transferring the balance? or should i keep it open in order to build credit?
    I have a 5 year history with Capital One.
    Any advice is appreciated.

  20. Grego says:

    Miko, you should keep the credit card open, even if it is high interest. Credit card accounts that you have held for a long time will increase your credit score, there really is no reason to close them. Once, I thought my interest rate was too high on my citi card so I called them and told them I wanted to close the account because I had better cards in my wallet with lower rates. Since they really wanted to keep my business they offered me a 0% APR for a year or so. So that is an option you might try. Keep the account open - you never know when you might need the money.

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