JAFAQs: 0% APR cards

(and how I've used them both successfully & unsuccessfully)

Welcome to JAFAQs, a weekly series that is exactly what it sounds like: answers to the most common questions I've gotten since I started addressing my $20k of personal debt. 

Do you have a question about debt, personal finance, budgeting, mental health, life in New York, that article in The Cut about babies or literally anything else? Send them on over to realgirlproject@gmail.com + come back every Wednesday to see the answers.

This week’s JAFAQ: How do 0% APR promotional balance transfers work?

The first time I transferred my credit card balance to a 0% APR card was many years ago. Before that, I had no idea it was even an option. It seemed like a trick and, well, in some ways it is.  

Banks use 0% promotional periods as just that: a promotion. They’re banking (hehe) on the fact that you won’t finish paying off the amount you’ve charged by the time that period is up. Back then, in my case, they were right. I watched (or rather, avoided at all costs) the interest rate hike up into the double digits after the 18 month period was up and continued using the card I had meant to use only as a means of debt consolidation, not only not eliminating my debt but adding to it. It was not a very sound plan. 

As you might already know if you’ve been following along with my debt journey, it would take years (and lots of therapy and self-actualization) to make a solid debt repayment plan. Now that I have one – and have (mostly) stuck to it – I can share with you a few things I’ve learned. 

Transferring to a 0% APR card 

I often get asked how I picked out the card I used. Honestly I looked on NerdWallet for the card with the longest promotional period and crossed my fingers that I’d get approved. 

But there are a number of factors to consider when looking into a balance transfer. The first one is, unfortunately, your credit score. I managed to maintain a pretty good one over the years by utilizing a lot of credit and making sure my payments, however small they were, were sent on time. Your eligibility for a 0% card (and how much of your balance you get approved to transfer over)  is, in part, contingent on that score. 

Calculate the fees

There is also the matter of the transfer fee. Depending on how much debt you have, it might not actually be worth it to move money over to a 0% card. The fees hover somewhere between 3%-5%, so if you don’t have a huge amount of debt and have a plan to pay it off in a certain timeline, I’d recommend going straight to the avalanche method (more on that below) as the fee might add up to be more than the total interest. 

Know that the whole amount might not transfer

If your debt is a large amount, like mine was, you might not get approved to transfer all of it. This is what happened to me last summer when I applied to a Wells Fargo card. I was lucky that I was able to transfer a sizeable chunk, and was able to throw all of my extra funds at the remaining balance on the high interest card with the peace of mind that no interest was occurring on the bigger amount. 

Have a plan 

Truthfully you can disregard all of what you just read if you’re not absolutely ready to start taking your finances seriously, which starts way before you apply for a 0% APR card. As I learned, I could never confront my debt, let alone try to get rid of it, before realizing how many of my “money problems” were actually matters of mental health. How I got into debt because I didn’t know how to say no, because I’m a people pleaser, because (in part) of low self-worth, because of … you get the point. 

Whatever you think of Suze Orman, there’s something she said on a podcast episode once that I always return to –  “most people have credit card debt because when you feel less than, you spend more than.” I had to start feeling more than to stop spending money I didn’t have. Which leads us to…  

Making a budget 

How many times can I preach the benefits of Tiller? And yet here I am, doing it again. There is no tool that has been more valuable in seeing, flat out, where the hell my money goes every month, how much money is coming in, how much I actually need to live a comfortable life and how much I can allocate toward debt repayment. 

You can check Tiller out here. I have an affiliate link with them, which they offered to me after they saw how much I was using the product and how many people I was telling about it. Once you know how much money you’re working with, you can decide how to tackle paying off each debt. 

Avalanche Method

There was a time when I was carrying balances on a number of different cards, all with different interest rates, all so overwhelming I avoided them – so much so that when I announced how much debt I was in,  I completely forgot about an entire credit card with a $5,000 balance that I hadn’t accounted for. 

The bulk of my debt was on a Chase Sapphire Preferred card, $12,000 of which I moved to a 0% APR Wells Fargo card. That left a few thousand dollars on the Chase card, as well as varying amounts on the remaining cards. I looked at each bank statement (in many cases for the first time) to see which one of the group was charging me the highest interest. 

Then I started sending as much money as possible (within reason) to that card while making the minimum monthly payments on the rest. Once that balance was gone, I went down to the next highest, and so on and so on until I was down to just one card with interest and the Wells Fargo card without. As of today, I have $9,200 left to pay down on the Wells Fargo card, and I have until March to pay it off before the interest rates skyrocket.

I’m not sure it’s possible – as a freelancer I have been going through a particularly lean employment period, especially as we work to get our larger podcast project off the ground. But I’ll be doing all that I can to get it as low as possible before that time.

Ultimately, I found that a 0% APR card was a better option for me than a personal loan or going through a service like the ACCC. The personal loan rates aren’t that much lower than a credit cards, and the ACCC, or American Consumer Credit Counseling, felt more like a last resort. What they do essentially is consolidate all your payments and get the interest down to 10%. But it puts a mark on your credit score, and, more importantly, you can only do it one time, and you are required to only make minimum payments. I felt it would be better to save this option in the event (and hopefully I won’t be) that I need it more urgently.

Questions? Comments? Sound off below.

XO,

Jamie AF