@HiLine wrote:Since it is apparent that people get balance transfer credit cards just to take advantage of the 0% APR promotional period, these cards must be hugely unprofitable for the creditors.... Or am I missing something?
Ok so here is the game that credit cards companies play. Again they are working the numbers. First of all with the new regulations you think you are totally protected but guess again. There seems that there are just a few LOOP HOLES, but before we get to that. First credit card companies hope that your BT is larger than you will be able to pay off before the offer expires. That way the money you borrowed will be with them so they have the chance to collect interest. Ok now to the loop holes. I fell for this the first time and only one time!!!! LOOP HOLE #1 is that they don't have to pay down your highest rate first. Let me explain. When you pay your card the min payment goes to the 0% first. Yes you heard me right. The min can go to whatever they want it to go to. LOOP HOLE #2 they don't have to give you ANY grace period on any new purchases while you have a BT. So they collect interest the second you use that card next.
Ok.. Let's work this through to see how it works out for the CC companies. First you take a BT of lets say $2000 with a transfer fee of 5%. $2100. Now lets say it is early in your statement cycle and you spend $500 on a purchase. So from that second on you are paying interest on the $600 lets use 12% (pretty low but you are a good credit user). So when you get your statement it reads $2606. Your min payment for this wonderful CC BT and purchase is $40, BUT being the good credit consumer you pay $100. So the first $40 goes to the zero percent BT. Then the other $60 goes toward the $606. So now at the end of that month you only owe $2506 but you still have $546 that is collecting interest! At that pace it will take you about a year of never using that card to purchase anything to pay off that $500 single purchase. Of course don't forget the interest you are collecting along the way about $70. So you almost paid as much for the $500 as you did for your $2000 BT. They have lots of numbers to show that it is worth their time to do this. Again remember if you were making that $100 payment each month you would still have about $1520 of the BT left to pay after 1 year. THEN.... Bam they can collect interest on that too!
There you have it. How the game works.
Now lets see how you can take advantage of the system. If they can play the game you can play the game as well. Again I LOVE LOVE LOVE the checks they send out. If I am going to make a large purchase or BT I do it this way EVERY TIME. First of all I make sure I have enough money to pay the interest off ASAP! Like within days of it clearing. I bought my last car this way. I purchased a winter car for $5000 at Christmas time. I wrote the check to myself for cash for $5155. Why the extra $155? to pay the interest for the Balance transfer fee the day it posted or if you have the money don't borrow the extra and just pay it as soon as it posts. I then pay my monthly payment of $250 for each of the 15 months I had for the BT. So now 15 months later, March of the next year I had paid $3750 and got my tax return and I paid the last $1405. The way I saw it $155 to finance a car was a pretty good deal. I have also used it to pay down my mortgage. This time I borrowed $3000. First I have only had my home loan for 1 1/2 years so interest is a BEAST on $160,000. Something like $650 a month right now. A one time payment $3000 at 3% for 15 months so for $90 I am able to cut $9000 of interest off my loan!!!! NOT BAD. Now I even sat down and figured out what if I just put the extra money I would pay for the $3000 loan ($200/month) towards the mortgage? I still saved almost $1500!!! YEAH that's right because this early on in the loan one big payment vs 15 small ones makes that much difference in the long run. Not bad for a $90 loan! Even toward the end of mortgage this makes sense (except for the last 4-5 years or so) Of course your end return of saving won't be nearly as much like 2 years out you will only save a few hundred dollars. But the way I see it every dollar saved is a dollar earned. I figure if I am able to do this once every 15 months for the next 15 years I will save like $10,000 vs paying an extra $200 monthly to the loan.
OH one other thing... by using this system I don't take a hit from a credit inquiry.I figure 10% Utilization is better and easier to get rid of then a Hard credit Inquiry. I plan on purchasing a second investment property(first one is the mortgage I was talking about above) next year and my wife wants to start her own business next year as well and we made less than $80k combined this year but I have had no problem when I inquired about getting another loan for 150k.
Remember if they play the game SO CAN YOU!!! Just be smart and know what is really going on.
Just a little reference point for you. I have about 50k of credit card limit. I rarely get more than 5K CC debt out at a time and I am great at making payments and paying off before the end of a term. It's the same reason all those Big Box stores like best buy offer you 0% for 18 months.. They know the numbers are in their favor that you won't get it all paid they they get to collect all the interest for the entire 18 months! I bought my $2000 TV that way and and didn't pay a dime to finance it!
Good luck on your credit journey!
Starting Score: 719That clarifies a lot. Thanks for the insightful post!!! 
@HiLine wrote:That clarifies a lot. Thanks for the insightful post!!!
Hey I checked out your blog. That is a pretty cool thing to do. Lots of help for people out searching for info that may not have a FICO account.
Knowledge is power and it is in the industry's best interest to keep you in the dark!
@Homeowner13 wrote:
@HiLine wrote:That clarifies a lot. Thanks for the insightful post!!!
Hey I checked out your blog. That is a pretty cool thing to do. Lots of help for people out searching for info that may not have a FICO account.
Knowledge is power and it is in the industry's best interest to keep you in the dark!
Exactly! Just debuking credit myths is enough material for my blog to last for years! Thanks for your support. 