Back on February 4, I shifted $14,500 to a Navy Federal credit card using a no-fee balance transfer at 0% for a year, then 10% thereafter. True, it’s not a payment, but I won’t have to fight against the interest accruing as I pay down my debt.
A balance transfer is just what the words imply — one of my credit card companies sends money to another of my credit card companies effectively transferring the balance over. The offer usually gives a low rate for a set amount of time (in this case, 0% for 12 months), before increasing the rate. Sometimes, companies will charge a 3-4% fee up-front to make the transfer — so that’s an important to look for — but Navy Federal is not doing so at this time as part of an introductory offer.
As for why the company does it, part of it is that they know they’ll get to make money off of me when that rate goes back up. Another part may be that they’re banking on me missing a payment in the low-rate phase, allowing them to charge a high penalty rate thereafter so it’s definitely not without its risks. And perhaps the biggest risk is the psychological one — that I might feel like spending more than I should because it feels like I have more money while not getting charged interest.
But that’s why I’m keeping this blog — to keep myself honest about not doing that. Anyhow, considering that I’m using this to transfer to 0% all of the balance of a 21% interest rate card and most of the balance of a 16% interest card, this balance transfer should save me about $2000 over the year; that’s two less payments I have to make!
Date Action Amount CC Balance Notes
01/08/2013 Started -- (35,000) 21,000 at 20%+
01/14/2013 Payment 1000 (34,000)
01/28/2013 Payment 1000 (33,200) At 21%, 16%, 9%
02/04/2013 Balance T'fer -- (33,200) $14,500 at 0%
[Yes, I really used to update my blog every time I made a loan payment -Ed.]