Paying off Debt with 0% Balance Transfers
Usually when you hear about 0% balance transfers, you think of consolidating high interest credit card debt into a new 0% credit card. But what about other debt, such as a car loan or even a home loan? What if you were to transfer that balance onto a 0% balance transfer credit card, essentially financing your debt at a 0% rate? Most would advise against this for two reasons: Firstly, the 0% APR would only apply during the introductory period, which is generally 12 months. Secondly, it is a huge risk to do this because if for some reason you aren't able to pay the debt off within the introductory period, your interest rate on the debt would go through the roof.
This risk however does not bother LAMoneyGuy, who is planning to refinance his car loan by obtaining a 0% balance transfer credit card. Admittedly, the 0% balance transfer arbitrage risk for him is minimal, since he currently has enough money in his savings account if he needs it in 12 months. Some more interesting thoughts on this are at Blueprint for Financial Prosperity.
So if LAMoneyGuy can do it, shouldn't you too? Some advice — at Credit Card Blog, we tend to be risk-averse. In fact, we are extremely risk-averse. We would never advise playing the 0% balance transfer arbitrage game unless you have in hand some emergency cash, as LAMoneyGuy does. You never know what might happen with your cash flow situation several months into the future. Should it dry up for some reason, you could be left with some pretty hefty interest on your new 0% balance transfer card a year from now. As usual, be aware of the risk and play it smart, or don't play it at all.