Risky Business: The 0% Credit Card Balance Transfer Game

As of recent, there have been a lot of blogs and other news websites which have discussed the 0% balance transfer game. Essentially you go out and get a credit card with an introductory rate of 0% and use that money to make interest in a savings account earning about 5% APY. This might sound like an easy way to make some free money, and it really is. All you have to do is transfer a bit of money out of your savings each month to make the payment, and then pay it off when the interest free period is over. Take your money out of the free savings account and do with it as you please!

There's really not much of a problem with this as long as you go with a solid bank and do not plan on making any major purchases in the near future. If you do plan on making any purchases in the near future, chances are they are going to look at your credit score. If you happen to be making any big purchases, your credit score is going to go down and you will find it a lot harder to get a good loan for your purchase, which could be an automobile or a home.

Let's assume you get a mortgage at 6%. Because of your new credit card balances, your rate goes up 25 basis points to 6.25%. Now you are paying $250 per year extra every year you have a mortgage just so you can get $500 back the first year. On your third year you are already losing money. After the 30 years of your mortgage is up you've lost $7000 just because you had to get that credit card.

There's much more to it than that. The $500 you earn won't be $500, it'll be much closer to $350 or $400 after you pay taxes, so it's even less than the original $500 that you thought. There is also always the possibility that the credit card company could have somehow forgotten to deposit your payment, and bang you get a $40 late fee and your interest rate jumps up to 30%. You may also be paying interest when you don't realize it. Some companies calculate interest based on the last three months balance, so you could pay off your card thinking that you owe nothing in interest, and end up owing a lot of interest that you weren't expecting. There's always something that can happen.