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Save Money With A 0% Balance Transfer Card

Transferring your credit card balances to a 0% rate can be a fast and easy method to cut the cost of borrowing and give you some additional time to repay your debts. Here’s a guide to making the most of 0% balance transfers.

Balance transfers are becoming an increasingly popular credit card offer in Canada. Canadians are using them as a super easy, effective and convenient balance transfer credit cardtool to slash the cost of borrowing.

Here’s a guide to help you find the right balance transfer credit card and make the best of your interest free offer:

Why Get a 0% Balance Transfer Card?

This may seem obvious, but there are actually several uses for 0% balance transfer cards:

  1. To make borrowing less expensive
  2. To make extra money

Remember the following before you apply:

Lower your cost of borrowing:

For most people, the primary benefit of a 0% balance transfer credit card is that it provides additional time to pay down your existing credit card debt without being charged interest. Essentially it allows you to pay down the principle of your credit card balance, as opposed to the interest, for the term of the 0% balance promotional period. Even then, there are alternatives to a 0% balance transfer card that might be better for you:

Should you pay down debt from your savings?
Most personal finance experts would suggest using your savings to pay down any outstanding debts you may have. That makes perfect sense when your savings are earning a 1%-2%%, and your interest is costing upwards of 10% to 20%. Regardless, a low balance transfer credit card is a solid exception to the rule, hence it’s popularity.

With Canadian high interest savings accounts now earning a little over 1%, you can see why it makes sense to use your savings to pay down high interest loans. However, even with balance transfer fees of 1%, you can use a balance transfer card to pay down your outstandings without having to dip into your savings. This is especially true if your savings are tied into your RRSP’s or a long term savings product, where you’ll either be charged fees or taxes for early withdrawal.

How to Find the best 0% balance transfer deal

There are 4 criteria each balance transfer offer should be evaluated on:

1. Length of the interest free promotional period
Determine how much of your credit card balance you can pay each month – your monthly payment. Divide your monthly payment by your total credit card outstandings to determine how long it will take you to repay your balance in full. Now find a credit card that gives you a 0% rate for the number of months it will take you to pay off your debt.

2. Size of the balance transfer fee
Most balance transfer cards charge a balance transfer fee. Usually the fee is in the range of 1% to 3%. In most cases, the cost of the transfer fee will be added to your balance. So if you transfer $4,000 of credit card debt, you will be charged a $40 transfer fee, which will be added to your balance, so you’ll owe $4,040. Make sure to look for a balance transfer offer with a low transfer fee.

3. Promotional rate APR
Obviously a 0% APR cannot be beat. Unfortunately, not every bank offer a 0% introductory rate. Some offer .99% or 1.99% or higher, depending on their underwriting criteria and your credit profile. Just remember, while Canada does not have a plethora of 0% offers, there are some. So don’t give up your search until you find one. Check our list and ranking of balance transfer offers, which include 0% promotional rates!

4. Approval criteria
We recommend this before you apply for any credit card. Review the application approval criteria BEFORE you apply. Specifically, make sure you meet the minimum annual income thresholds and credit history criteria such as no current delinquencies or bankruptcies. Why bother applying for a credit card that you have no possibility of getting approved for.

Making the most of your balance transfer

It makes sense to get the most financial use out of your new 0% balance transfer credit card. The first step is to move any outstanding borrowing to your new card as soon as you can so you’re no longer paying expensive credit card interest charges. The faster you do this the sooner you’ll start saving. Remember that most cards will have a ‘balance transfer window’ and if you don’t shift your debts within this period you’ll lose the 0% deal. If you have several outstanding credit card balances and don’t have a sufficient credit limit on your new card to shift them all you should prioritise the debts with the highest interest rate to maximise your savings. You then need to make arrangements to repay the balance as quickly as possible, ideally before the end of the 0% interest free period. The easiest way to do this is to divide the total balance on your new card by the number of months you get interest free. This figure will be how much you need to repay each month, and you just need to set up a standing order or direct debit to repay this amount until your card is cleared.

Earning income from 0% balance transfers

Earning money from balance transfer credit cards is also possible, although it takes lots of attention to detail and discipline. Essentially, it entails using a 0% transfer offer not to pay off your balance, but to transfer cash at the same 0% rate, called a money transfer, into your bank account. You then invest that money, which you’ve borrowed at 0%, into whatever savings or investing vehicle you choose. Any interest or return you earn, would be greater than 0% (minus the 1% transfer fee), netting you a profit. When savings rate were 3%+ and investment returns 8% plus, this represented easy math. With savings accounts now paying 1% plus, its not necessarily a slam dunk. Just make sure you can earn more in interest or investment return, than you’d pay out in interest.

 

 

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