Question: I have around $5,000 on, I think, five or six credit cards. I’ve been seeing these offers for other credit cards that say I can transfer my balance to them — and they won’t charge me interest. I don’t see how this isn’t a scam. How can they make money if I move thousands of dollars to them and then pay it all off without a dime in interest?
Are these things legit? If they are, what’s the catch? There’s got to be a catch.
— Richard in Delaware
Howard Dvorkin answers…
Yes, Richard, these offers are “legit” — and yes, there’s a catch. There are several, actually.
First, I think you’re missing a key element of these offers: They expire. When you sign up for what’s known as a zero-percent APR balance transfer, you usually have between six and 18 months before an interest rate kicks in.
Second, that interest rate can be higher than the one you had on your old cards.
Third, as Debt.com has written about before: “Unfortunately, nearly all zero-percent APR balance transfer offers require the payment of a 3 percent ‘balance transfer fee’ — so this benefit isn’t really free.”
Still, these offers can be a real boon to dedicated debt hawks who want to pay off their credit cards. Why? Because instead of paying around 16 percent each month in interest — which is the national average right now — that 16 percent can go to paying down those big balances.
Sadly, it seldom works out that way.
Credit card companies don’t make these offers out of the goodness filling their bleeding hearts. Many are publicly traded companies with a responsibility (and a moral obligation) to make money for their shareholders.
These companies know most cardholders aren’t going to use those 18 months to pay down debt. They will simply spend whatever they save in interest payments, and when the zero-percent interest offer ends, many will simply be too apathetic to search for a better offer.
Two years ago, that’s exactly what happened to a Debt.com reader named Drew. Two years earlier, he had written me about these offers, but by early 2016, he still had a lot of debt once again costing him high interest rates. “Thanks for nothing!” he wrote me.
I replied, “If you’ve already gone 18 months and been unable to pay off your credit card debt, you might need to give up on DIY and get some professional help.”
This is also an option for you, Richard. “Professional help” means credit counseling, which has no catches at all. You simply make a phone call and get a free debt analysis from a nonprofit credit counseling agency.
I’m suggesting this, Richard, as I do to anyone who isn’t sure how much debt they have, and on how many credit cards. If nothing else, a call with a certified credit counselor will help you learn where your money goes, so you’ll have better odds of succeeding if you do indeed sign up for a balance transfer offer.
Have a debt question?
Email your question to email@example.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.
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Article last modified on October 15, 2018 Published by Debt.com, LLC .