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Balance transfer credit cards give you free money. Well, they lend you money interest-free, anyway, and how good's that? In fact, at the time of writing, it's easy to find plastic offering 18 months of zero-percent APR before the standard rate kicks in. The Citi® Diamond Preferred® Card is just one. And as long as you keep up your side of the bargain and are aware of some simple rules, there aren't any serious catches. Who knew credit card companies were so charitable?
Obviously, they're not. They're almost certainly playing a numbers game, betting that at least in the long-term, they're going to make money from these products. Your challenge, should you choose to accept it, is to take advantage of one of these cards -- and not let it take advantage of you.
Using a Balance Transfer for Debt Reduction
It's easy to build up credit card debt to a level at which you feel uncomfortable. You start off allowing yourself just a little, and then there's a whole string of exceptional expenses: the car breaks down, the dishwasher needs replacing, you've had a tough week and need to treat yourself to dinner... Before you know it, you owe thousands. You're coping, but the amount you're paying in interest every month bothers you.
That's the time to turn to balance transfer credit cards. Don't leave it until you're starting to lose the battle to stay on top of payments, because you need good credit to get one of these. And don't apply before you're truly determined to rid yourself of card debt, because it's easy to be seduced by all that "free" money. Many people find they actually owe more when the zero-interest introductory period ends than they did when they applied for the card -- and that's when card issuers win their numbers game.
Seven Rules for Debt Reduction Balance Transfers
- Have a plan for reducing your debt before you apply for your new card. Be optimistic yet realistic about how quickly you can pay down balances, and set yourself some milestones so you can measure your progress.
- Remember: nearly all these cards charge a balance transfer fee, usually three percent of the amount you're transferring. Build that into your calculations.
- Be sure you're going to be able to zero your balance before the introductory APR period expires.
- Transfer your balances quickly. The time within which you're allowed to do so is often limited.
- Don't charge purchases to your new card, even if it offers a zero-percent APR on those too. It's a slippery slope.
- Most of these products today extend their interest-free offers to new purchases. If yours doesn't, and you charge to the card, all your monthly payments will go to paying down the debt with the highest interest, so you won't be reducing the balance you transferred.
- Never miss a payment, go over your limit or pay less than the minimum. Do any of those, and you'll likely void the offer, and immediately face having the card's standard APR -- or even a really painful penalty rate -- imposed.
Balance Transfer Cards for Purchases
If you don't have card debt, or it's too small to worry about, those balance transfer credit cards that offer a zero-percent APR on new purchases can still benefit you. When you need to buy a big-ticket item, using one of these cards can be as responsible a way of acquiring it as saving up -- providing you can be certain you're going to pay it off completely during the zero-rate introductory period. You also have to be sure you're always going to pay promptly and appropriately, otherwise you could face the consequences described in rule 7, above.
There are even circumstances when using this plastic can save you money. Imagine your washer or freezer goes kaput. During the time you're saving up you could be wasting money on trips to the laundromat, or by missing out on frozen bulk-buy bargains. Using one of these cards to replace the appliance shouldn't cost you a cent, while allowing you to avoid such unnecary spending.
Indeed, this plastic can be beneficial even if you already have enough savings to pay cash for a big-ticket item. Savings rates may be a joke at the moment, but that's no reason to forgo the interest you would have earned had you borrowed the money at zero cost.
Card issuers would stop offering these products if they weren't making money from them. When they approve your application, they're likely wagering that you're going to be one of the profitable customers who end up with big balances when the introductory offer ends, and the standard APR begins. It's up to you whether you allow their bet to pay off.
Disclaimer: The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we can not guarantee the accuracy of the information in this article. Please verify all terms and conditions of any credit card prior to applying. Check our credit card database for updated terms and conditions.
Disclaimer: This content is not provided or commissioned by Citi. Opinions expressed here are author’s alone, not those of Citi, and have not been reviewed, approved or otherwise endorsed by Citi. This site may be compensated through a Citi Affiliate Program.
Disclaimer: Reasonable efforts are made to maintain accurate information. See the Citi online credit card application for full terms and conditions on offers and rewards.