Ok, I’ve been thinking of ways to handle all the questions on this topic I still haven’t answered in my 4-Part series on How To Make Money From 0% APR Balance Transfers. I decided simply to answer them all, Cramer-Lightning-Round-style. Questions may have been edited for length, spelling, and clarity. Remember, the answers are from me – one imperfect man with an opinion.

Here’s the first half:
[Read more…]

[This is Part 4 of an ongoing series about how to make money from 0% APR balance transfers.]

So now you have the money and are ready to earn some interest. How do I set this up so I don’t spent all day on it?

Overall, It’s Easy
Seriously, when people say it’s too much trouble to keep track of, I just don’t understand. It’s a credit card bill. I’m sure most people already get 5 bills a month. You get a bill, you pay the bill. What’s so hard about that? The only thing slightly taxing is to remember to pay it off completely by the end of the 0% period.

Put another way, the risk here is in your control, unlike stock market risk or even real estate. If you make your payments, your profit is virtually guaranteed.

Now, there are three main objectives here – pay the minimum payment on time, keep earning max interest, and then pay off the entire balance before the 0% period expires.

Minimum Payment Setup
There are two basic ways to pay your credit card bills, either “push” them the money via check or online BillPay, or have the credit card compnay “pull” the money out of your bank account:

Manual Push
This is what I do. It’s a bit old-fashioned, but it just makes sense to me. The 0% balance transfer is just another bill I have. I get the paper (or online) bill, put it my ToDo box, and then within a few days I pay it online with my bank’s online billpay. I can schedule the payment ahead of time, and the bank tells me when the payment will arrive. This way, I keep earning interest on my money as long as possible. You may want to test out your online billpay system if you don’t trust it just yet. You could do this with checks too, but why waste the stamp these days?

Automatic Push
Since your first minimum payment will be the largest minimum payment (unless they change it on you), you can just try to send the same amount every month at the same time. Bill due dates are usually about the same time of each month. For example, let’s say my MBNA card is due from the 25-27th of each month and the first payment was $245. Due to weekends and stuff, I could schedule a repeating monthly payment of $250 every month on the 20th.

This way, it’s all done for you. Every month your job is to just to glance at the bill and make sure the minimum payment is not bigger than your previous payment, which would indicate they changed the minimum payment rules (uncommon, but possible).

Note that both of these is assuming you use a checking account with billpay. If you can absorb the minimum payments using your usual checking account, great. Nowadays Citibank and Washington Mutual also have savings accounts earning 5% APY right now. I just move money into my checking account twice a month from savings to cover bills.

Manual Pull
This method has the benefit of being able to use high-yield savings accounts. You must make sure that they accept such external requests (Emigrant Direct no longer does.) If this is the first time doing this, I try to pay very early the first month and ensure that it posts correctly.

I’ve done this with HSBC Direct, WaMu, and others. You just have to give your credit card company your bank’s routing number and account number. Then each month, after getting the bill, you log in, and have them take out the minimum payment. You can also specify the posting date – again, waiting until the due date gives you more time earning bank interest.

This method allows you to just move all the money into a high-yield account and have it sit there the whole time. You just pay the credit card company back a bit of their own money each month, and watch interest accumulate.

Automatic Pull
I thought more credit card companies did this, but I just did a quick look and didn’t find any. The idea is for you to authorize the credit card company to pull out a set amount (the minimum payment for example), every month from your savings account. No fuss, no muss. I dislike the lack of control here, but others may not mind.

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Payment Reminders

There are several ways to remember to pay your bill:

1) Most credit card companies also offer free email alerts to remind you to pay your bill. For example, I think I have one set to remind me 5 days before the due date.

2) If you use Outlook or a PDA, just stick in recurring monthly reminder on there. Use Snooze as needed, but not too often 🙂

3) I used to use Yahoo Calendar, but now my favorite is Google Calendar. Both allow you to set up both e-mail and SMS text message reminders to your cell phone, which I like.

Pin down the period end and set multiple reminders
You want to make sure of the end date of your 0% APR. Check the fine print. Call your card issuer and confirm. It should coincide with your statement cycle end date. If the CSR doesn’t sound confident, call and speak to another one.

Examples: The Discover Miles Card says “0% until the last day of the billing period ending during April 2008”. So if your billing period ends on every 23-25th, then be sure to pay it off by April 23rd, 2008. Give yourself a buffer, maybe have it paid off by the 17th.

The Citi Home Rebate Platinum Select MasterCard says “0.00% for 12 months from date of first balance transfer.” Check your statement to find out the actual date for the balance transfer.

Set multiple reminders! I usually make a little list of deadlines, which I check against each month whenever I get a bill.

Ok, I think that’s the bulk of the walkthrough. If you’re ready, use one of the cards I mentioned or see this list of the best cards with no-fee 0% balance transfers.

If you still have some concerns, I made a list from your questions and gave my answers. See Part 1, Part 2, and Part 3. Please read through it, I think 95% of questions should be answered by the end. If not, leave a comment. Thanks!

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Skip To Another Part
I. Introduction and Warnings About 0% Balance Transfer Offers
II. Scouting For 0% Balance Transfer Offers
III. Application Tips and Getting Cash From 0% Balance Transfers
IV. Setup And Management of 0% APR Balance Transfers
V. Best Pre-Screened No Fee 0% APR Balance Transfer Offers

[This is Part 3 of an ongoing series about how to make money from 0% APR balance transfers.]

Before I start, someone said that it’s too easy with Citibank, and can I do an example with another issuer. Sure. Let’s run through it with the Discover More Card this time.

First, you do all the scouting and find the following:

Annual Fee: NONE

Balance Transfers APR: 0% until the last day of the billing period ending during May 2009*, then the standard APR for purchases

Annual Percentage Rate (“APR”) for Purchases: 0.0% until the last day of the billing period ending during November 2008;* then the standard APR, a rate between 10.99% and 18.99%**

BALANCE TRANSFER FEE: 3.0% for each balance transfer made under this offer, with a minimum of $10 and a maximum of $75.

Ok, no annual fee, 0% APR until May 2009 (as of this most recent update, perhaps even longer than 12 months) on balance transfers (note the specific wording though, also the exact date may be different depending on how long ago I updated this post). The balance transfer fee is 3% capped at $75.

This means if you transfer $7,500, then $75 is only 1% of that balance. Transfer $15,000, and that’s only a 0.50% fee, and so on. You can still make this up and create profit.

Application Process
Credit card applications are pretty much the same all around, but there are some things to note.

Housing Information
They always seem to ask if you rent or own, your housing payment, and how long you’ve stay at your address. Part of this is probably identity verification, and part of it is screening on their end. So I wouldn’t lie here because you think owning is better. Any mortgage should show on your credit report anyways. I both rent and move a lot, and I haven’t had any problems getting cards.

Employment Information
Same deal, tell the truth. I’m not sure about all companies, but often if you are a full-time student, credit card companies will be more lax with you and still give you a card even with low income.

Household Financial Information
This is important. And vague: Household Annual Income. This number is important. For one, most low-interest cards like this that target people with good credit have a minimum income requirement. It may not be that high but it’s there.

Second of all, it helps determine your credit limit. For the purposes of this activity, you want the highest credit limit you can get. In a way, I think it’s intentionally vague so they can offer you more credit (and earn more potential interest). So you want to say your household annual income is as big as possible. Include everything – your parents income, your roommate’s income, interest income, dividend income, money from grandma. If you can get into that next bracket, all the better.

In this case, Discover is upfront about it:

Except for full-time students, you must have a minimum annual household income of $15,000 to be considered for any Discover Card account. For highest credit line, please include all sources of annual household income.

There are two screens and 7 steps where you enter your information. Click on ‘Submit Application’ (don’t worry, it’s not the last page), and the next screen will ask you for balance transfer information.

Getting Your Money

As part of the application, they will ask you if you want to make a balance transfer, how much you want, and where you want it to go. They want your balances!

How much you want?
When requesting a balance transfer amount, I recommend for reaching for the sky. Ask for double or triple what your current limits are, or even higher. They won’t reject you for asking for too much, in the end they get to decide what kind of credit limit you can get. For example, if you just ask for $5,000, maybe they’ll just give you $5,000 or $7,000. But if you ask for $10,000, they may just give it to you as that means more guaranteed business for them.

When I applied for the Discover Miles Card, I asked for a $15,000 in balance transfers and got an $11,000 limit. I only had one Discover card a few years before this one, so I was pretty happy.

While you may want to ask for the balance transfer with the application to haggle a higher credit limit, other times you may want to put it off. This is so you can transfer some of the credit limits on your other cards within the same issuer in order to get a much higher limit. For example, if you got a $10,000 limit on your new AT&T/Citibank card and already had $10,000 on another Citi card, you could make it so that you had $19,000 on the new card and leave $1,000 on the old card.

Getting the Money Directly
Some card issuers may allow you to issue yourself a check for the balance transfer amount, or even deposit it electronically into your bank account with bank account and routing number. The latter is preferred since you’ll be losing potential interest while the check is in the mail and waits to clear. Two banks I have gotten direct checks are AT&T/Citibank and Chase, but this may vary. This is by far the easiest way to get your money.

Citibank is the easiest to get a check from. Click here for a step-by-step guide on how to request a balance transfer check online after you get the card.

Indirectly
If they don’t, then you’ll have to do it indirectly. This will require another credit card, and it doesn’t even have to have a balance. Let’s say you request a $10,000 transfer from Card A to Card B. Once approved, it will show up on Card B as a $10,000 payment, and you will now have a negative (credit) balance on card B. If you make a lot of purchases you could just use it up that way, but most people will have to ask for a credit balance refund in the form of a check.

It matters what card issuer you use for Card B. AT&T/Citibank is the easiest to transfer TO as well, in the fact that you can request it online directly and without even human interaction. Here is a screenshot of the menu option you should look for:

I have also done this with American Express by calling in. Sometimes they will make you wait for a few days to make sure the payment clears before issuing the check. Now, if you send a big fat payment to a card that you never use, they might become suspicious. I have sent it to my American Express Starwood card which I already use regularly as a rewards card, and they’ve never given me a hard time.

Do not send it to MBNA, they may reject the transfer. I have also reported some success with Discover in the past, but I am not so sure about Chase, Advanta, and others. If you do try one of these, it’s better to use a card that already has a balance on it to fly “under the radar”. Honestly, I almost always just use AT&T/Citibank, switching to a different Citi card sometimes if I do more than one a month. Last time I used American Express was mainly an experiment to make sure they still did it.

With my Discover Miles card, I sent $7,000 to Citibank and $7,000 American Express. American Express sent me a check for the overpayment after verifying the balance transfer with Discover, which ended up making their check arrive about 4 days later than Citibank’s.

Either directly or indirectly, you should have money now in the form of a check or online transfer.

Where do you put the money?
If you already have higher-interest loans, like a home equity line of credit or other credit card debt, you could just move it there.

Otherwise, I recommend putting the money into an FDIC-insured or similarly safe checking or savings account that is relatively liquid. Here are some online savings account options, and this is my current setup to maximize interest. One reason why is that you must still make the minimum payments on the card, with are usually about 2% of the principal. So on $10,000 that would about $200 a month, decreasing each subsequent month as you pay it down. The second reason is more practical – if somehow you make a late payment, you can minimize the damage by simply paying the entire balance off immediately. Even at 20% APR, if you can pay it off in a few days the damage won’t be devastating.

Of course, some people may place it into bonds, dividend-yielding stocks, or other investments. To each their own, but I would not take that kind of risk for short-term loaned money.

Next up: Setup and management of the balance transfer. How do you manage the payments and due dates?

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Skip To Another Part
I. Introduction and Warnings About 0% Balance Transfer Offers
II. Scouting For 0% Balance Transfer Offers
III. Application Tips and Getting Cash From 0% Balance Transfers
IV. Setup And Management of 0% APR Balance Transfers
V. Best Pre-Screened No Fee 0% APR Balance Transfer Offers

[This is Part 2 of an ongoing series about how to make money from 0% APR balance transfers.]

Now that you’ve read my introduction and warnings about 0% balance transfer offers, let’s try to find some suitable deals. First, some definitions:

A balance transfer is traditionally the transfer of a debt balance from one credit card to another. However, there are various direct and indirect methods to convert this into cash inside a bank account. It is usually for larger amounts, up to almost all of the credit limit on the card.

A cash advance is often similar, but not identical. Usually, this is for smaller amounts (your card may list a special “cash advance limit”) and comes to you directly as cash. If you use a PIN with your credit card at an ATM or bank branch to receive cash, this is considered a cash advance. Cash advances usually have the highest interest rate, and are almost always to be avoided.

A purchase is pretty familiar to everyone and just that, when you are getting services and/or goods with your credit card. Some credit card companies reserve the right to reclassify purchases of cash-equivalents (such as traveller’s checks) as cash advances.

The reason why it is important to note the difference between these three terms is that in the fine print of your credit card agreement, these three things can be treated totally differently. That brings us to the fine print. This is the guts of any balance transfer offer, and can usually be found in small print on the back of physical applications, and via a links that says Terms and Conditions on online applications. It’s meant to be hard to find, but it is critical to find it.

As a working example, let’s take the first card on my Best of 0% APR Offers list – the Citi Professional Cash Card. I do a quick scan of the application, and note that they are also offering a permanent 3% cash bank on restaurants, gas stations, certain office supply merchants, and for auto rentals. I’ll discuss this later.

Then, click on the Apply Now button. You should see this: On the initial application page, you see this:

Now click on Terms and Conditions (circled above). Every online application should have a similar link. If you have a physical Terms and Conditions sheet, save it. If you have an online version, print it out or print to a PDF. Here is an example PDF. It takes just seconds but gives you peace of mind. Then either tuck it away or e-mail it to yourself.

Ok, now we have the T&Cs. I usually do the following online – hit Ctrl-F and search for the term “balance transfer”. The Firefox web browser has a nice feature where you can highlight every occurrence. I also do this for the term “fee”. For paper versions I just do this by skimming. You get good at it after a while 🙂

Doing this alerts me to the following pertinent sentences:

Annual fees – None.

Balance transfer APR: As long as balance transfers are completed within 12 months from date of account opening, 0.00% for 12 months from date of first balance transfer . After that, 11.99% variable.
Cash advance APR: 20.99% variable.
Default APR: 29.99% variable. See explanation below.*

Balance transfer fee: 3% of each balance transfer; $5 minimum. There is no fee with the 0.00% APR balance transfer offer described above.

Here is a screenshot that I took:

So there is no balance transfer fee with the 0% APR offer. Sweet.

But, the purchase APR is at nearly 12% APR. Remember, since your payments always go towards the balance at the lowest interest rate, if you request a 0% balance transfer all your payments would go towards that. So you can’t take advantage of both the 0% on balance transfers and the cashback program. Here I’d do the 0% for 12 months, and then after that is over I’d keep the cards for the 3% back on restaurants.

Annual fees. This should be zero or at least waived for the first year during the 0% period. I only tolerate annual fees for excellent rewards cards like the Starwood American Express Card. In this case, it is zero.

Balance Transfer APR and Length – Obviously, lower is better and 0% APR is best. 0% is usually for a limited time, anywhere from 3 months to 15 months. Anything over 9 months catches my eyes. Here it is 0% for 12 months, which is very good.

As interest rates rise, 0.99% or 1.99% might start to look good as well when you can make 5-6% at the bank. But remember, you pay taxes on the bank interest, and you cannot deduct credit card interest. So if you make 6% but are in the 25% tax bracket, you end up with 4.5%. If your credit charges 1%, your profit margin is 3%. Still not bad depending, but perhaps you could do better elsewhere.

Update: Interest charged for money used for investment purposes can be tax deductible if you document it properly. So in my previous example if you the bank is paying 6% and your credit card is charging 1%, if done right you can deduct the 1% on your taxes and get taxed only on the 5% margin (3.75% net if taxes are 25%). I’m no tax expert, so consult your accountant for details.

Balance Transfer Transaction Fees – Again, lower is better and best is zero. 3% is common, but the caps are what I focus upon. For example, there may be a cap of $75 on balance transfers not part of the promotional offer.

If you transfer $5,000, you pay $75 or 1.5% of balance.
If you transfer $10,000, you still pay $75 or 0.75% of balance.
If you transfer $20,000, you only pay 0.375%.

If there are no caps, that indicates a bad deal. 3% upfront is usually too much to overcome and you can do better. Caps $75 and under get a closer look from me. But again, in this case, there is no balance transfer fee. Nice!

The rest – Okay, those three things are my primary screens. If those aren’t satisfied, into the shredder it goes. Some credit cards make you have a purchase each month to keep the low rate, often for the “0% for life” deals. Keep in mind purchases get their own APR, and all payments go towards the balance with the lowest interest rate. Now, there are tons of other stuff on there, but I personally don’t pay too much attention to them. Here are some examples:

APR on Purchases – 0% on purchases are great and add flexibility to the account, but I usually only make purchases on separate cards to get 2-5% cashback. They can be useful if you make a lot of purchases.

Default APR, APR on Cash Advances, Late Payment Fee, etc. – I don’t plan on ever paying any of these, and they are all very similar across all credit card companies, so I gloss over them. For a good run down of these other fine print details, check out this post at StopBuyingCrap. One thing to note is the Universal Default Clause, which basically says that you get the crazy-high default rate if they find out you pay any creditor late. Utilities usually don’t report to credit bureaus until you are over 30 days late, but credit card companies report it pretty much as soon as you are late.

Balance Transfer / Cash Advance Checks
For an existing account, you may get checks in the mail offering 0% APR or similar as well. You should be very careful as to whether these are classified as cash advances or balance transfers by your credit card companies. After that, repeat the steps above to see if it’s a good deal. It can be tricky, you may get four checks, and the first two have different terms than the last two! In addition, some checks say that if you write it to yourself, it is a cash advance, but if you write it to someone else, it’s a balance transfer.

Too much! I’m Lazy, Can You Do This For Me?
Sure, as mentioned above I have composed a list of good pre-screened no annual fee, no balance transfer fee, 0% APR offers. I will keep this list updated regularly.

Yes, talking about fine print is as fun as watching paint dry, but it’s a necessary step to ensure maximum profit. My next post is about the application process and actually getting the borrowed money into your bank account.

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Skip To Another Part
I. Introduction and Warnings About 0% Balance Transfer Offers
II. Scouting For 0% Balance Transfer Offers
III. Application Tips and Getting Cash From 0% Balance Transfers
IV. Setup And Management of 0% APR Balance Transfers
V. Best Pre-Screened No Fee 0% APR Balance Transfer Offers