Zero balance transfer credit cards are great! If you have a credit card debt that you can’t seem to get rid of, transferring that balance over to a new credit card that doesn’t charge you a single penny of interest might be your saving grace, financially speaking. All you pay is the 3-5% transfer fee on the amount and you don’t have to pay any interest, at least until the promotional period ends. But what if you could bypass the transfer fee all together and not pay any fee at all whatsoever? Though it may seem too good to be true, Discover has made that into a reality with one of their current promotions with their More Card. Right now, you can enjoy 12 months of interest free on balances with free balance transfers! That means you don’t pay any interest on the transferring amount and don’t pay any fee to transfer that amount. Let me give you a real life example so you can better understand how much you can save with this promotion.
I currently make payments on two cars. The Nissan Rogue and the Honda Accord. The financed amount for the Accord was $10,422 with a super high interest of 4.99% apr. That equates to roughly $197 monthly payment for 60 months. Over the duration of the loan, I would end up paying $1,375.70 interest. If I kept up with the amortized payment schedule, I would pay more than 50% of the total interest in the first 18 months. The other 50% would be paid during the remaining 42 months. For this reason, it is more important to make additional principal payment early on to save substantially on interests. I decided to make extra $253.37 every month for a total of $450 monthly payment. This reduces total interest paid to $586.18, a savings of $784.52 over the course of 5 years. So far, I have made 3 payments and about to make my 4th one later this week.
Now if I were to take advantage of the zero balance transfer for 12 months and with no transfer fee, I would pay off the total remaining balance on my loan of $9,000 with my current credit card. Then I would transfer $6,000 over to the new Discover More card, with plans to pay off the remaining balance of $3,000 off immediately. That gives me 12 months to pay off $6,000 interest free, giving me a monthly payment of $500. This is only $50 more than what I pay now monthly so it’s something I can afford to do. By doing this, I would save a total of $1,209 in interest as opposed to $784.52 without the free balance transfer card. I would also receive 1% cash back for $9,000 spending as an everyday benefit for using a Discover Card.
Here are some thoughts to consider before jumping in on the 0% balance transfer cards.
1. Never be late for a payment. If you’re late even just one month, the credit card companies are not usually very forgiving. They will charge you not only the late fee, but also full interest fees as well, often as high as 20-30% apr for that month.
2. Don’t transfer more than you can afford to pay in monthly payments. In the example above, I could transfer all of $9,000 and enjoy interest free payments. But I have to pay that off within 12 months or I’ll end up paying full interest on the remaining balance, which sort of defeats the purpose. $9,000 in 12 months equates to $750 per month, which I cannot afford at this time.
3. Always read the fine print before applying for any cards. Make sure you understand all of the terms and conditions. You don’t want to be stuck with APR penalty for being late on your payments.