Some credit cards are offering up to $10,000 in credit for a balance transfer from another credit card.
Many banks charge a fee for doing the transfer. The average fee is 3% of the amount of each balance transfer with a $5 minimum. But if you get a promotion without the fee, then you can actually make money on this.
First, avoid the credit protection when signing up. It’s like extended warranty: a total rip off and 100% pure profit for the banks.
The catch is you still have to make the 200$ monthly payment. In theory, you pay $200 a month, $2400 a year, pay off the balance of $7600, and pocket around $400 if you invested the $10,000 wisely.
INGDirect 4% interest Savings account was great at the time, because you could easily make $400 in the above example. Today, that measly interest rate in near 2%. But that’s still $200 of free money!
What’s the catch?
First, you must may off that balance or else you’ll be charged a lot more than 4%. More like 21%, or greater!
If you don’t pay it off in full, interest not only gets charged, it becomes retroactive to the day you got the card. In other words, all that free interest wasn’t free.
Banks make money because, like Las Vegas, the odds are more people often can’t pay the balance in full at the end of the year. It’s a numbers game. And Banks usually win. Especially around holiday time when these promotion are launched.
Another Reason Why Banks will Win
After you’ve done the 0% transfer, the banks will entice you to charge new purchases on your card. Why? Because they can charge their standard “almost illegal” high interest on those purchases.
The payments you make every month will go to pay down the 0% balance transfer first. The new purchases will keep accruing interest at 21% or greater.
So, if you made a $10,000 transfer and then make the mistake of charging a $100 purchase on the card, interest will be charge monthly on that $100 and until the $10,000 is paid off.
What to do with the Money?
Aside from a zero risk investment, like INGDirect, you could use that money for 401K (USA) or RRSP (Canada).
Or just treat yourself to a nice weekend away with dinner or hotel.
The choice is yours. Just make sure you pay back in full on time.