Those offers of 0% financing for up to 24 months are not stuffed into your mailbox because somebody “up there” really likes you. The companies that pay the postage on those offers are in business to make money.
You are on their mailing list because, for one reason or another, your credit card debt situation matches the profile their computers are programmed to look for. You probably carry high credit card balances, pay lots of interest, and miss “payment due dates” frequently enough to incur significant late payment penalties. The companies that send you these offers know that what you really need is a debt consolidation program worked out by an experienced professional that includes personal finance management training. They hope that you haven’t realized that yet, and will see their offer as the perfect lifeline to get you out of debt. They expect to make a lot of money off of you before you finally accept the fact that you need professional help.
Occasionally the companies are fooled by an individual who accepts their offer of a 0% APR credit card balance transfer who temporarily fit the target profile, but who actually has the money management skills and personal discipline to turn their offer to his or her own advantage. Mistakes like that are costly for the offering companies, but still inexpensive compared to the profits they expect. More on beating the system later.
What the Companies Offering 0% APR Credit Card Balance Transfers Really Expect
Offering low-interest loans that balloon to a much higher interest rate after a given period of time is not a new idea. The companies offering 0% APR credit card balance transfers have an enormous amount of history upon which to base their profit expectations. They know that the outcomes for a large percentage of the people who accept their offers will look something like this:
- The client’s first bill after transferring a balance will include a healthy and usually unanticipated balance transfer fee.
- The lack of personal financial management skills and/or self discipline that was the initial cause of the client’s financial difficulties will probably cause the client’s balance to grow rather than shrink.
- The near inevitability of a late payment will result in an immediate interest rate increase well before the expiration of the low interest period.
- That even if they have to accept a lower interest rate or forgive some late payment penalties as a result of a future debt consolidation effort, the outstanding balance will remain the responsibility of the cardholder, and the company will keep most of the easy money they have made up to that point.
Not a very pretty picture, but all completely legal.
How to Make a 0% APR Credit Card Balance Transfers Work For You
Let me start out by stating as clearly as I can that if your credit card debt problems are the result of a lack of personal financial management skills and/or self discipline, your best course of action is to seek assistance from a reputable nonprofit credit counseling service. If you sincerely believe you have a realistic chance to make the credit card balance transfer work for you, here are some steps to follow:
- The very first step is a basic reality check. Take your total current credit card debt and divide it by the number of months of 0% interest you are being offered. Subtract that number from your anticipated income, and see if you can fashion a realistic monthly budget (that doesn’t include accumulating new credit card debt) from the remainder.
- Remember that your budget should include an allocation for saving at least some money every month.
- If you are part of a family, be sure to include your spouse and possibly older children in shaping that budget.
- If you have any doubts about the ability of you or your family to live within the budget you have designed, take your budget to a credit counseling service for their review.
- When you are confident that you can make the budget numbers work every month without exception, the next step is to carefully compare the terms of each 0% APR credit card balance transfer offer you have received. Read the fine print. If you don’t understand it all (you probably won’t), take the offers to the credit counseling service, and have them explain the pros and cons of all available offers.
- Apply for the best offer available. If approved, arrange to have the amount necessary to pay off all your debt paid directly to the credit card company from your checking or savings account every month.
- Find out if the first month’s payment will include a transfer fee, and make sure that full amount is added to the first payment.
- Find out how the “payment due date” will be determined for each month, then check with your bank to make sure the automatic transfers will occur well before the earliest possible due date.
- Remember that a credit card is a necessity for some kinds of purchases. Keep one of your old credit cards active after transferring the balance, but be sure to pay the entire balance on that card in full every month. Never make routine monthly purchases on the card you used for the credit card balance transfer.
- Put a disaster recovery plan in place. Make sure you have a short-term line of credit available in the event of an unexpected expense that could otherwise cause a late payment.
Following the above guidelines for becoming debt free with a 0% APR credit card balance transfer for 12 to 24 months won’t be easy, but all approaches to working your way out of debt involve some degree of sacrifice and discipline. If you are successful, there will be a certain well deserved satisfaction in knowing that you beat long odds, and made the system work for you.