Play Video

Pay Zero Interest On Credit Card Debt. 0% APR Balance Transfer Promotion. IS IT REAL?

Today I’m answering a question that was left in the comments of one of our videos about using a 0% APR balance transfer.  I’ve paraphrased the question for clarity and removed the credit card names because I’m not interested in advertising for those credit card companies.  

Here’s the question we received: Would you recommend transferring a credit card debt of $8000 to 0% Introductory APR card or Just set my account to autopay $1000 every month

Based on my personal philosophy with credit I would do the 0% APR transfer AND set the new credit card to autopay $1000 every month. That being said, your personal ideals may be different. In the rest of this video I’ll explain why I would make this choice and give you the math behind it.  

To get started let’s look at the key facts and assumptions in how 0% APR Balance Transfer Promotion.  

$8000 in credit card debt. 

Able to pay $1000 per month. 

Current credit card has an interest rate of 22%

Assume that the 0% introductory rate will last 9 months or more and balance transfer fee is 5%

Note it’s usually no higher than 5% but can sometimes be lower.  

For the baseline, let’s suppose you are paying $1000 per month as stated. With the 22% rate your pay off plan will look like this:     

You will end up paying $732 in interest and you’ll be out of debt in 9 months. Note: Due to a technicality in how credit card interest works there is a payment of $13 in month 10, don’t forget to make that payment!

Now let’s look at the 0% APR balance transfer.

When credit card companies offer 0% introductory rates for balance transfers, they earn money at the beginning with a balance transfer fee. It’s possible to find a card that doesn’t charge this fee, but it’s rare.  Most of the time, the fee ranges from 3 to 5%.  I’m going to assume 5%, the worst case scenario. But I am also assuming that you will get at least 9 months of 0% APR.   

In this scenario, you transfer the $8,000 debt and incur an upfront fee of 5% or $400.  So your total debt is now $8,400. And you begin making your $1000 payments.  Your payoff schedule looks like this: You still pay off your debt in 9 months but save a few hundred dollars. 

One more thing to consider. Getting the new credit card will likely drop your credit score 10 to 20 points but the impact will depend on your current credit situation. Consider how you’re going to use the old card and new one before making this choice.  You might check out my information on the double autopay method for credit cards before deciding.  Also, it’s perfectly fine to pay off the new card, then cancel it when you’re done with the introductory rate.  

Thanks for watching and If you have a credit question you want me to answer, drop it in the comments below or send us an email. 

Stop paying the high interest rates from carrying a monthly balance on your credit card!

Soft Credit Pull, Up To 40 Lenders at Once, See what you’re approved for!

Picture of Jonathan Walker

Jonathan Walker