0% Interest Game

Have you played the 0% interest credit game?  I guess I knew it was possible but I didn’t know how popular this was until a client of ours told me about it. 

Visa_cards
Like I do, you undoubtedly get bombed with numerous credit card offers each week.  Most of the time I throw them out, but if you take the time to read them carefully, you may be passing up an opportunity.  The “game” is played by holding a large amount of unpaid debt that you continue to transfer around to new cards, one after another, and basically avoid paying any interest!

So here’s the way I read it.  Each of these cards have an initial period where they offer 0% interest provided that you pay the minimum monthly payment.  Before the initial period expires, you need to have identified and opened a new card and transfer the balance onto it.  If you miss the timing then you will face substantial interest due.

There is another ‘catch’ in that most of the cards I found (Balance Transfer Credit Cards or Compare 200+ Credit Card Offers) have a balance transfer fee of about 3%.   The way I see it is that even if you can’t get a card with a 0% transfer fee, you still just paid 3% interest for a whole year.  That’s WAY better than even an equity line at prime + 0 (7.5% today)!  My client was telling me that she knows people doing this with $100’s of thousands of dollars in debt.

Creditscorechart
But there is a downside.  Carrying a lot of rotating debt on credit cards will hurt your overall credit rating if you go to get a home or car loan.  Also, there may come a time when you cannot qualify for a card when you need to make a transfer.

However, there is a big different between borrowing money to buy consumer goods versus borrowing money at a discount for the chance of making a higher return investment.  For example, if I were to give this a try, first off I would make sure I could pay off the credit card fully whenever needed.  Then, I would get a 0% interest card that allowed new charges AND allowed cash advances to be made interest free for an entire year.  I would use the cash advance blank checks that come with the statement to deposit money into my investment account and away I’d go – buying stocks, mutual funds, ETFs, whatever. 

Fine print:  Not FDIC Insured.  Not Guaranteed.  May Lose Value.  May Hurt Your Credit.

Have you ever done this 0% interest game?  Do you know anyone who has done this?  I’d like to hear from someone who has done, or is doing this to see how successful you’ve been.

As always, we appreciate your comments.

-mark

2 thoughts on “0% Interest Game

  1. From my position as a mortgage broker, I’m weary about the 0% balance transfer game. Balance transfers are reflected as newly opened accounts on your credit and this is a penalty on your credit score. If you’ve been playing this game for many years, and continue to open then transfer your debt to zero balance credit cards, then there’s no solid history of steady payments, which means that you’re not establishing any positive credit. Alternatively, if you decide to transfer balances to an existing credit card that you already have, your credit rating probably won’t decrease, but be careful to not max out that credit line.
    In certain situations, doing a balance transfer may help ease the pain of credit card interest and may help you get back on your feet, so it isn’t a horrible thing if you do this once or twice. But as an advisor on credit matters, I cannot recommend using this 0% interest game as a mode of credit management because you will be treading a fine line with your credit rating. It would be more prudent to keep what you have, use what you have and err on the side of caution.
    We live in a credit-driven society and I can’t stress enough the importance of maintaining the best credit score possible. Please let me know if you have any questions or if you would like a free credit report analysis.
    Irene Moustakas
    408.257.1681

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  2. james coughlan

    The 0% game can be a very dangerous one if you plan on getting a mortgage in the near future (within 2 yrs or so). Credit score is a calculated through a combination of factors such as: how long you’ve held the relationship with the creditor; how much outstanding debt exists and how it’s distributed; debt-to-credit rate; etc.
    If you have all your debt on one card and it’s at 90% of the limit, that’s bad for your score. If you distribute it between three cards and the debt is at 30% of the limit on each card then that does not impact your credit the same.
    If you are opening and closing credit cards within a year, you are adversely affecting two major factors that decide your score (amount of time card held and how much the debt maxes out the card). 15% of the calculation of your score is how long you’ve held the card and 30% is how much outstanding debt you hold.
    If you’re playing the “game” and making 12-18% on your money elsewhere, you need to remember that you’ll probably lose more than that easily on the 30-year mortgage rate that you will receive as the result of this practice.
    As the universal axiom states: “If it sounds too good, there must be downside.” Whenever you look at the short-term gain, there’s usually a long-term loss.
    Good luck.

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