PT Money » Debt Reduction

Relying Too Much on “Future You”

PT — Thu, 08 Oct 2009 08:38:37 +0000

Your future self just called. They want their money back.

We all have to rely on others from time to time. What are friends and family for, right? So, is relying on your future self the same as asking for a handout from someone else?

I say there’s nothing wrong with doing that occasionally. But when you do it over and over again, you sort of wear out your welcome, don’t you?

The “future you” I’m referring to is of course your future earning capacity. When you go into debt, you are relying on future earnings to pay for things that you want now. And, because of the associated interest payments, you’re asking your future self to pay more than they should.

For things like a home, a car, an education, asking the “future you” for a little help isn’t that bad of an idea. After all, they will all either increase / maintain value or provide some other source of income over time.

Where you get into trouble is when you go into debt to pay for things that don’t maintain value or help produce income. The future you ends up paying money (in the form of high interest) for something that isn’t there anymore, or is outdated and long replaced.

Action step for today: Write your “future self” an email. Say that you’ve started a debt reduction plan and you’ll quit relying on his or her earnings so much.

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How to Effectively Use 0% Balance Transfer Credit Cards

PT — Wed, 02 Sep 2009 14:33:56 +0000

Today I want to discuss how you can properly use 0% balance transfer credit cards in connection with a debt repayment plan, or even as a way to make some extra money.

A few months back I warned of the dangers of 0% interest rate credit card balance transfers. I still stand by those points, but at the time I promised I’d follow up with my story of how I successfully transferred my credit card balances. I also promised I’d share some tips for making the balance transfer work for you. That’s why I’m back today to help fill in the gaps on the process.

How I’ve Used 0% Balance Transfer Credit Cards

Back in 2001 I had about $3,000 in credit card debt. Around that time decided it was time to quit spending more than I was earning and pay off the debt completely. I had wised up. Specifically, I realized I was paying a bunch of money in interest by keeping that balance AND that extra outflow was keeping me from achieving other goals.

So, I came up with a plan to pay it off. It was a simple plan that included throwing any extra money left over each month at the debt. I decided a piece of the plan would be to used a 0% balance transfer credit card to help:

lower the amount of interest I was paying while I paid it off,
and motivate me to pay it off quicker (by the end of the term).

It worked. It took me about 6 months to pay it all off.

I’ve also used 0% interest rate deals in other instances. I may go into these more in a later post, but I actually used a 0% credit promotion when I got Lasik surgery and a 0% credit card when I paid for some wedding costs. In both instances I never paid a dime in interest, I racked up a bunch of credit card rewards, and never had to tap into my short-term savings.

Why Use a 0% Balance Transfer Credit Card?

There are a couple of good reasons to consider using 0% balance transfer credit cards:

Paying Down Debt – The first and obvious reason is to help you pay off debt. While the transfer itself isn’t going to pay off your debt, making the transfer will mean you are paying less in interest payments while you pay down your debts. Make sense?

You might currently find yourself in a bunch of credit card debt. Not the end of the world. But maybe you’ve built up a balance over the years and you’ve just been paying the minimums. This is the best reason to use the 0% balance transfer, in my opinion.

Credit Card Arbitrage – Second, you might want to do what’s called credit card “arbitrage”. This is where you apply the transfer to an old card that doesn’t have a balance. You receive a negative balance on your card. You then ask for a refund of that negative balance. The money can then be used to earn more money.

How does that work? Well, in the past people would do this by placing the money in a high-yield online savings account. Since those accounts aren’t paying that much in interest these days, people have turned to riskier strategies, like micro-lending.

The bottom line with arbitrage is that you are using the credit card promotional deal to get free money so that you can earn money with that money elsewhere. I’m not going to address this much more in this post, but I will promise to cover it in a future post and to share some of the better strategies out there today.

Warning: Don’t use this 0% balance transfer credit cards strategy if you are simply planning on consolidating debt in order that you may free up room for more spending on credit. This is the wrong way to use this strategy. Just don’t do it. It will only encourage you to rack up more debt and give you a false sense of security. Only use a 0% balance transfer if you are on a serious debt repayment plan, or you have no debt and want to responsibly take on an arbitrage strategy.

The above word of warning was not meant to discourage people who are in dire straights from using these cards. I realize people often turn to these cards when they are experiencing a temporary financial set back, like a job loss or injury. By all means use these cards to help float you over that down period. Just remember to be aware of the dangers.

How to Evaluate 0% Balance Transfer Credit Cards

So which card should you go for? There are a couple of things to focus in on when looking at credit cards with 0% promotional interest rates:

The length of the 0% promotional period (or term). This can be anywhere from 3 to 18 months. Obviously the longer the period, the better the deal. You know how long it will take you to pay off your debt, so make sure you get a card with a period long enough to cover you.
The balance transfer fee. This is the fee that the credit card companies will charge you to make the transfer. It can be anywhere from 0-3% of the balance you are transferring, and/or a minimum of $75. This is the difference maker. Compare this fee with the amount of interest you’d expect to pay on the card if you did nothing but continue on your debt repayment plan with the old card. If the fee is higher, then don’t do the transfer.

See my review of some of the top 0% balance transfer credit cards.

How to Make the Credit Card Balance Transfer

Understand the dangers.I can’t stress this enough. Playing with credit cards is no amatuer sport. You have to understand the rules and be disciplined throughout the process.
Check your credit. It might be a good idea to check your credit report and score. To get the card and the limit you’ll need, you’ll need a decent score. No sense going through this process if you can’t move that much money.
Find the Right Card. Using the criteria listed above, determine which credit card is going to suit your needs.
Apply for the new card and ask for the transfer. Now that you have decided on a card, complete the application, making special note of the balance transfer section. This is where you will need to put your card number and latest balance. It’s obviously a good idea to have your statement available for reference.
Don’t close out the old card. But don’t use it either. Lastly, after you transfer your balance, make a point to not use the old card. Remember, making the transfer isn’t a license to rack up more debt. It’s a chance to pay down debt without paying interest. Put the old card somewhere where you won’t be tempted to use it. But don’t close the account as the available balance and credit history both positively affect your credit score.

Have you every used a 0% interest rate credit card to your advantage? Share your experience in the comments below…

Photo by: Andres Rueda

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Carnival of Debt Reduction #202: Dog Days of Summer Edition

PT — Mon, 27 Jul 2009 11:00:12 +0000

We’re well into the dog days of summer. Summer vacations (or stay-cations) have come and gone. The heat is still rising, along with energy bills. But don’t sweat it. I’ve got plenty of debt reduction posts to keep you cool and motivated to get rid of your debts.

If this is your first time visiting Prime Time Money, I’d encourage you to check out my posts on Debt Reduction and consider signing up for the free updates.

Without further delay, I present the Carnival of Debt Reduction #202 – Dog Days of Summer Edition. First up, some of my favorites.

Top Dogs

There were plenty of excellent submissions to this week’s carnival, but a few really focused on specific steps you can take to get rid of your excess debt.

The Digerati Life – The Digerati Life submitted a post called How To Get Out of Debt With A Debt Repayment Plan.
Five Cent Nickel – nickel presents Debt Reduction: Share Your Story posted at fivecentnickel.com.
Penny Jobs – Curt presents 7 Steps To Dig Your Way Out of Debt posted at PennyJobs.com.
Single Guy Money – presents It’s Time To Get Out Of Debt – Debt Reduction Tips posted at Single Guy Money.
Prudent Money Blog – Bob Brooks presents A Big Victory for Those in Debt Collections posted at Bob Brooks – Prudent Money Blog.
Debt Kid – debt kid presents Paid Off Credit Card Reminder posted at DebtKid.com.

Cool Dogs

Looking for a little get out of debt inspiration? Check out these super cool posts:

Matt Jabs presents A Journey of a Thousand Miles begins with A Single Step posted at Debt Free Adventure
Madison presents The Exponential Power of Delayed Consumption posted at My Dollar Plan
Craig Ford presents Debt: Upside Down and Backwards posted at Money Help For Christians
Debt Freedom Fighter presents The Benefits of Debt Reduction posted at Discover Debt Freedom
Benjamin presents Dave Ramsey’s “Baby Steps” to Financial Freedom posted at Trees Full of Money
Master Your Card presents How To Avoid Financial Sabotage | Master Your Card posted at Master Your Card

Chill Dogs

These posts discuss different strategies around debt reduction, credit scores, and credit cards. Don’t work hard. Work smart. Then kick back and watch your debts go away.

J. Money presents The Best Order To Take Out Money posted at Budgets are Sexy
DR presents How to Get Your Free FICO Credit Score from myFICO.com posted at The Dough Roller.
Mr Credit Card presents Should I Close My Account If My Rates Get Increased? posted at Ask Mr Credit Card’s Blog.
Patrick @ Cash Money Life presents Using Credit Cards to Rebuild Your Credit Score posted at Cash Money Life.
The Smarter Wallet submitted a post called How To Consolidate Debt: Ways To Reduce Your Debt Load
oneadvice presents Reduce Your Credit Card Debt posted at One Advice
Personal Finance Analyst submitted a post called Dealing with the Devil – Getting Better Deals on Your Credit Cards
FMF presents A Full Credit Lockdown posted at Free Money Finance

Good Dogs

Here’s a few more good reads. While not directly related to debt reduction, the money management, frugality, and investing information below provide a great supplement to your efforts on the way to debt freedom.

Thanks for reading, everyone! If you’d like to participate in a future edition of the carnival visit the Carnival of Debt Reduction website and submit your posts. You can also submit your posts at Blog Carnival.

Photos by: Zenera, Rodrigo Basaure, Pacdog, lecates, TheGiantVermin

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Who is this Dave Ramsey Guy?

PT — Fri, 24 Jul 2009 19:13:00 +0000

Although I don’t mention him much, I’m a huge fan of Dave Ramsey. I’ve been following him online and on the radio for at least six years now. He actually played a huge role in helping me get my own finances in order.

I like Dave for the tough, straight-forward message that he brings. Sometimes you just need someone to tell you how it is. Dave does that well. I also like Dave’s application of Christian principles in his message.

Who is Dave Ramsey?

I know a little about Dave’s past; mostly from what I’ve heard him tell though. Basically he was a real estate entrepreneur that made a ton of money, but also racked up a bunch of debt. He went through a bankruptcy, and came out of that experience smarter about his finances and with a passion to help others. He then started his radio show and wrote a book, Financial Peace, which really got him established in the world of personal finance.

Dave is now the ultimate “get out of debt” guru. I would guess that no other person has helped more people payoff debt. Dave is the man.

The Dave Ramsey Show

The best way I’ve connected with Dave over the years is by listening to his show. The show has a little bit of everything going on. Dave takes questions from people struggling with money issues, people who are finally debt free, and even throws in some occasional commentary on the economy and politics. If you listen, you’ll end up agreeing with what he says as a whole, but you’ll be left with the feeling that you got punched in the gut. He definitely calls you to action.

You can listen to it over the radio (check local listings), or stream it online. When I first started listening to Dave, I listened to the online podcast. I liked it because I could skip around to the parts that applied to me and skip the commercials as well. Check out his radio show page.

Financial Peace University

If you want to really get to know Dave Ramsey’s approach, sign up for his Financial Peace University (FPU). The 13 week video series takes you through all that Dave has to offer. Plus, you get to experience it with others going through the process. The accountability has to be the best part of this program. The best place to find a Financial Peace University is at your local church or community center. Unless your church is offering to pay, this will cost you around $100. Pete from Bible Money Matters recently shared his experience with Financial Peace University. It’s definitely worth checking out if you’re interested in doing the full course.

Total Money Makeover

Dave’s biggest achievement to date has to be the success of his book, The Total Money Makeover. In the book, Dave outlines his approach to helping you get out of debt and the seven baby steps that you need to use to get started. This is likely the best way to approach Dave’s methods if you’re not ready for the full FPU and don’t have him on the radio.

The 7 Baby Steps

Dave’s message can be boiled down to seven steps that you need to follow in order to have financial peace.

$1,000 to start an Emergency Fund
Pay off all debt using the Debt Snowball
Three to six months of expenses in savings
Invest 15 percent of household income into Roth IRAs and pre-tax retirement
College funding for children
Pay off home early
Build wealth and give! Invest in mutual funds and real estate

Where do you find yourself on the list of baby steps?

Endorsed Local Providers

A big benefit of being a Dave Ramsey fan has been learning about his Endorsed Local Providers (ELP). ELPs are essentially financial companies that Dave has hand picked to endorse. From this list, I was able able to find a real estate agent in my area I could trust. And most recently, I recently used Zander Insurance (an ELP) to help find the lowest quotes on life insurance. Dave gives these ELPs his stamp of approval and holds them accountable for their service.

Dave Ramsey is Bad at Math

Because of Dave’s Debt Snowball (paying down debts using lowest balance vs highest interest rate) he’s been accused of being bad at math, or dumbing-down his methods for the masses. While I don’t personally subscribe to all of his methods, I know they work for the people who use them. Whatever your thoughts are on his specific methods, you’ve got to admit it’s resonating with a bunch of people and truly helping them.

Why Dave Ramsey Works

I never been a strict follower of Dave’s steps and to be honest, I haven’t even read his books. But I’ve absorbed his message over the years through his radio show and been moved to make a change with the amount and type of debt I was carrying. And each day, hundreds more are experiencing Dave for the first time. What they’re getting is an honest, no-gimic approach to getting to financial peace. That’s the best you can hope for, and that’s what Dave brings.

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Paying Off Student Loan Debt Early

PT — Mon, 29 Jun 2009 23:14:09 +0000

If you have student loan debt, are you planning to pay it off early? Or are you simply making the minimum payments because you’re comfortable with the low interest rate, tax deduction, and low payments?

For the longest time, I’ve been in the second camp, happy to pay off my student loan debt using the minimums, knowing I had other financial goals that took precedence.

Well, that time has come and gone. With the down payment of our house complete, repayment of our high-interest auto loans, and money saved up for our first baby, the only big financial hurdle Mrs. PT and I currently face is the repayment of our student loans. And we’ve already taken action…

Last month we paid off one of our loans with one big chunk payment. Most of the funds came from our most recent ESPP flip (forced extra savings using company stock). And by the end of the summer, we should be able to wipe out the last student loan.

Overall I’m definitely proud to be able to close out this debt, but I do have mixed feelings whether this is the best move financially. With stocks, real-estate, and other investments on sale right now, I wonder if this money could have been better served elsewhere.

But I won’t be wondering long, as there are huge benefits to having this debt behind us: more money available for savings, more flexibility in our budget, one less payment to worry about, etc. Not to mention, student loan debt is the debt that would never be forgiven, even in bankruptcy. Lastly, it just feels good to be rid of it.

How about you? What did you do, or what are you planning on doing with your student loan debt?

In other news, last week I participated in a few blog carnivals. Check them out:

And there were plenty of nice article from last week throughout the blogosphere:

Have a great week!

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Carnival of Debt Reduction #193: New Credit Card Rules Edition

PT — Tue, 26 May 2009 10:00:32 +0000

New Credit Card Rules Edition

Welcome to the 193rd edition of the Carnival of Debt Reduction. Considering the recent rule changes we’ve seen enacted for the credit card industry, I thought that would make a good theme for this carnival. The carnival features a section of articles related to the new credit card rules, as well as lists some of the highlights from the new legislation. Thanks to the WSJ’s Washington Wire for the list.

Best of the Best Debt Reduction

Existing balances: Issuers cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent.

Payments: A consumer payment above the minimum applies first to the balance with the highest rate.

Christian Debt Help submitted a post called A debt reduction strategy.
Super Saver presents Saying Bye Bye to our Mortgage posted at My Wealth Builder.
The Digerati Life submitted a post called How To Avoid Bankruptcy: 5 Steps To Solvency.

More Debt Reduction

Teaser rates: Issuers cannot raise rates for the first year after an account opened. Promotional rates must last at least six months.

Bills: Issuers must send a bill 21 days before the due date.

MatthewPaulson presents The Top 5 Financial Resources You Need to Help Manage Debt posted at Fine Tuned Finances.
Lakita presents DANCE Out of Debt: 5 Starter Steps to Eliminate Debt posted at Paneh Praise.
CreditCardAssist.com presents The Best Balance Transfer Card Strategy posted at CreditCardAssist.com.
kathryn presents Saving Your Mortgage from Foreclosure posted at Out of Debt – Christian Finances and Debt Help.
Mr Credit Card presents Radio Interview with Adam Baker from Man Vs Debt posted at Ask Mr Credit Card’s Blog.

About the Credit Card Industry Changes

Over limit: Issuers cannot charge over-limit fees on credit cards unless the consumer has signed up to allow such transactions.

Minors: For consumers under 21 years old, a company must get the signature of a parent or another to take responsibility for the debt, or it must obtain proof that the under-21 consumer can repay credit.

Madison presents Credit Cardholders’ Bill of Rights Act of 2009 posted at My Dollar Plan.
Patrick @ Cash Money Life presents Changes to the Credit Card Industry posted at Cash Money Life.
PF Credit Cards presents Credit Card Companies are Screwed with the New Bill posted at PF Credit Cards.
Man Vs. Debt submitted a post called 18 Year Olds Now Require Co-Signer To Obtain Credit Cards. Still Maintain Right To Catch Bullets With Their Face!.
SpendOnLife.com presents Debit Cards Take the Lead Over Credit posted at Spend On Life.

General Finance Advice That Might Help You Reduce Your Debts

Disclosure: Cardholders must get 45 days notice of change in terms.

Fees: Issuers cannot charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service.

Gift cards: All gift cards must have at least a five-year life.

Peter presents 10 Practical Ways To Save Money And Increase Your Net Worth posted at Bible Money Matters.
FFB presents Credit Cards Don’t Suck, You Suck! posted at Free From Broke.
Pinyo presents Why You Should Start Using Sinking Funds Today posted at Moolanomy Personal Finance.
Leave Debt Behind presents Starting a Budget for Your Family posted at Leave Debt Behind.
Raj Patel presents Debt Settlement vs. DMPs: Questions and Answers posted at DebtGoal.
Enemy of Debt submitted a post called Got Credit Cards: Here’s Aother Reason To Say Goodbye!.
nickel presents How to Find the Best Mortgage Rates posted at fivecentnickel.com.
d. ninja presents Get rid of that darn murdercycle. posted at Punch Debt In The Face.
The Smarter Wallet submitted a post called Cheap Family Lives The Frugal Life With Ease.
J. Money presents Dear Shopping Malls, Best Buy, Target – I miss you… posted at Budgets are Sexy..
Matthew Paulson presents A Resource for Getting Debt Free posted at American Consumer News.
KCLau presents Easy Pawn Shops – Do you need to Pawn? posted at KCLau’s Money Tips.

—

A big thanks to everyone who participated in this week’s Carnival of Debt Reduction. If you’d like to participate in the future or possibly host it yourself, be sure and head over to the carnival website.

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5 Great Reasons to Have Less Debt

PT — Fri, 22 May 2009 13:09:30 +0000

I’m no stranger to unwanted debt. I’m currently working on paying off some debt I’ve had since college. I’m embarrassed to tell you how long ago that was. Paying off debt can be a long and challenging process, I realize. I often stop to remind myself what it will be like when I achieve my goal of getting rid of my unwanted debt. Here are a few good reasons you might be happier if you were in less debt:

1. Less Hassle – Think about it. For every debt you get rid of, you rid yourself of a monthly statement to open and review, a bill payment to schedule and make, and an online account to log into and check. Less debt means less to do. I think we’d all rather spend our time doing things we enjoy versus sorting through another debt payment each month.

2. An Improved Credit Score – These days, your credit score affects things like insurance premiums and your ability to find a job. So having a high credit score can be very important to your overall financial success. By reducing your debt, you improve your balance to available credit ratio, one of the key factors that affect your credit score.

3. Less Worry When Things Turn Bad – It’s never a good time for an expensive medical issue or a job loss. But a hard time can turn really hard when you’ve got a lot of debt to worry about too. Getting rid of your unwanted debt will give you one less thing to worry about, if and when things go wrong.

4. It Just Feels Great Not to Owe Anyone – You’ve probably paid off a debt before. Remember that feeling? Imagine if you could experience that same feeling for all your unwanted debts. That huge burden lifted would feel great!

5. More Money for Other Goals – Lastly, imagine all the other things you could be doing with the money you’re using to pay debts right now. Here’s a few ideas: funding your retirement, saving for a down-payment on a new home, saving for a child’s college, giving more money away to charity, saving for a great family vacation. You get the point. Having less money going towards old debts means you can have more money going towards the things you want more, the things that matter the most.

Have a good reason to be less in debt? Leave it in the comments below.

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Friday Funny: Don’t Buy Stuff You Can’t Afford

PT — Fri, 15 May 2009 15:44:10 +0000

Not much time for a full post today. So I thought I’d share this skit from SNL. It’s been around a while, but it’s still funny.

“Seriously, If You Don’t Have the Money, Don’t Buy It!”

Have a great weekend!

Head’s up…Next week I’ll be hosting the Carnival of Money Stories. If you’re a blogger I’d encourage you to get your submission in early.

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QuickHits: Company Stock Sale Edition

PT — Sun, 10 May 2009 21:39:12 +0000

This past week and weekend were very positive, both financially and personally. Some of you may know that we’ve got our sights set on our student loan repayment to be completed in 2009. Well, this past week we inched a bit closer to seeing that happen. And likely a bit sooner than expected.

My company stock had an unexpected high last week and so we decided to exercise some of the options I had received when I was hired. Company stock isn’t something I want to hold onto any longer than I have to, so it was good to see a bit of it go, and some extra cash for debt repayment coming our way.

On top of all that, I was able to see my Mom this weekend for Mother’s Day, celebrate Mrs PT’s first Mother’s Day, and participate in our baby girl’s dedication at Church. It was truly a special weekend. On to the quickhits…

The QuickHits

Here’s some nice posts from last week’s reading…

NCN, who’s thankfully decided to stay in the blogging business a bit longer just posted a great article at No Credit Needed titled, A 10 Step Outline of Our Financial Plan. I love posts like this that really show you how to map our your financial life. NCN is my hero.

What do you think of this Prepaid Credit Card for Teens discussed at Moolanomy?

Credit Cards Don’t Suck, You Suck! Thanks for the compliment, Free From Broke.

10 Dumb Ways Of Wasting Money, a guest post at Bible Money Matters.

Kacie from Sense to Save is finally Paying of the Car Loan! See how she did it. Awesome!

Think Your Way to Wealth presents, Is Buy and Hold Dead or Just Misunderstood?

Disputing a Charge on Your Credit Card by Stretchy Dollar

122 Ways to Trim Your Budget at Frugal Dad

The Blog Carnivals

Carnival of Debt Reduction: It’s a Marathon, Not a Sprint!

Carnival of Personal Finance: Birthday Edition

Carnival of Pecuniary Delights: Are You Cashing In on Going Green?

Thanks to the generous hosts!

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The Dangers of Promotional 0% Interest Rate Credit Card Balance Transfers

PT — Wed, 06 May 2009 10:00:21 +0000

Many people turn to promotional 0% interest credit card balance transfers to help them consolidate their high-interest debts or to participate in credit card arbitrage (using low interest debt to fund high interest savings accounts). In another post I’ll cover why these types of moves might benefit you. Both basically involve leveraging the interest rate on the card during the promotional period.

I used balance transfers like this when I was paying down my high-interest debt. And I ended up saving some money in the process. I haven’t written on this subject yet because I first wanted to touch on some of the dangers of doing this. While there are some definite financial benefits to using these balance transfers there are some things to watch out for that can make a good deal turn sour pretty quick. After all, credit card companies wouldn’t offer up these deals if they weren’t financially rewarding for them and not you. The truth is, though, that over the past couple of years, credit card users have wised up and started doing these deals the right way or simply avoiding them altogether. Anyway, here’s some things to keep in mind if you ever want to use a 0% balance transfer credit card.

Paying Balance Transfer Fees – The first thing you’ll want to watch out for are the balance transfer fees that the credit card companies are going to want to charge you to make the transfer. A typical fee is around 3% of the amount you are transferring. Some card companies set a cap limit on this around $75. Ideally you’ll want to pay no transfer fees for these deals. But that’s getting harder and harder as the card companies have wised up to users taking advantage of these promotions. How do you avoid the fees? I’d first try calling the card company up and asking them if they will waive it for you, or at least cap it at a lower level. If they won’t budge then look for one of the few remaining cards out there that don’t charge a fee. Fees of course can negate any money you save with doing the transfer. So avoid them at all costs.

Missing a Payment – Okay, let’s say you’ve transferred your balance over to the new card and it’s sitting pretty at 0% interest. A month goes by and you forget to make the minimum payment. Not good. According to many of these deals, your 0% rate could instantly go away and you’re back to a ridiculously high interest rate. Maybe even higher than your original rate. You don’t want to miss a payment. Set yourself a reminder on a work calendar or something. Make this balance a real priority so you stay on top of it and avoid losing your promotional rate.

Paying the New Balance Off Too Early – Paying off your credit card balances are always a good idea right? Well, if you’ve gone through the trouble of making a balance transfer to a 0% interest rate card then you are wasting all that effort if you pay it off too early. There is no penalty usually for doing this (paying it off early), but it has an effect on the amount of money you are saving by doing the transfer. The best thing to do is to divide your balance up into the number of payments you’ll need to make before the promotional period is over. Then, just make that payment each month. That extra cash that you could potentially put towards prepaying this debt could be sitting in a high-interest savings account earning some nice interest for you. This all goes back to leverage. You want your money working for you, not against you.

Canceling the Old Card – You should think twice before canceling an old credit card. Your FICO score is based on, among other things, your credit history. If you close an old account just because you don’t have a balance there anymore, you lose that history and that could lower your credit score. So, once you pay off the old card with the transfer money, consider using it to pay a monthly recurring bill and simply paying the small amount off every month. If it’s a reward credit card you definitely want to make sure you cash in all the rewards before you close it. I understand though, if you’re just looking to get rid of all your cards and want them closed. If that’s your goal, then skip this warning.

Missing the Expiration Date – This is similar to missing a payment. The 0% promotional rate will expire anywhere from 3 to 18 months. Please, make sure you set yourself a reminder to have this new balance fully paid off by the time the promotional period expires. If you miss this date and by then you still have a balance on the card, many cards will void the entire promotional period and make you retroactively pay the interest rate as if the promotional rate wasn’t there. This is not good, and only negates the whole reason you made the transfer.

Don’t Put Purchases or Cash Advances on Top of the 0% Balance – Lastly, here’s another credit card company fine print move you want to avoid. Don’t use the promotional rate card for anything other than the transfer for the promotional period. Why? Because they apply your payments to the purchases or cash advances last. Thus, burying these high interest charges under your 0% balance transfer. This means if you have a large amount transferred, it will be a long time before you can make your way down to the purchases and cash advances to knock those out. During that long wait time, those charges will be racking up big time interest rate charges. Thus, making any cost savings from the transfer null.

What else should you watch out for when it comes to 0% balance transfers?

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