How Banks Use 0% Balance Transfer To Trap You

This is an update to my post about Making Money Off Citibank MasterCard. The purpose of this post is to show how banks use these 0% balance transfer promotions to put you in the credit card trap. Banks are in the business to make money, not lose money by giving out zero interest loans. They have many tricks up their sleeves to tack on interest or fees to your account after giving you the freebie balance transfer.

While the credit card balance you transferred may incur 0% interest, many banks charge a fee for doing the transfer. In the case of the Citibank US MasterCard, that fee is 3% of the amount of each balance transfer, $5 minimum, $250 maximum. That means you need to make a greater than 3% return in order to come out a head.

Then there is credit protection insurance. For a “small fee” of $0.89 per $100 of average balance, this insurance will make your monthly minimum payment in the event of involuntary unemployment or disability. In the case of critical illness or death, the insurance will pay off your balance as long it’s not more than $10,000. Let’s see, this would cost me $89 per month if my balance is $10,000. The minimum payment on a $10,000 credit card balance is $200. However, if I pay $89 a month for this insurance, I can feel safe in knowing that should I become unemployed or disable, this insurance will pay that $200 for me! If you can afford $89 a month, surely you can afford $200. Credit protection insurance is by far the biggest rip off banks pull on unsuspecting consumers.

The next thing the banks will do is try to get you to charge new purchases on your card after you’ve done the 0% balance transfer. The reason they want you to make new purchases on the card is so they can charge their standard 18.9% interest on those purchases. The payments you make every month go to pay down the 0% balance transfer first. After the balance transfer amount is fully paid off, then you can pay off the purchased stuff, which have been accumulating interest during the entire 0% promotional period.

This is why there are so many 0% offers around holiday time. The banks are hoping you use the card to make those last minute purchases. It is also very common for the banks to raise your credit limit right after you do a balance transfer. They want you to use the card. Once you do, they’ve trapped you! The only way to make money on a 0% balance transfer deal is to pay absolutely no fees and not make a single charge on the card after the balance transfer is done.

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10 thoughts on “How Banks Use 0% Balance Transfer To Trap You”

  1. Nomar says:

    Good Article, Interesting to read, those banks are not stupid!!

  2. John Chow says:

    Those banks are actually pretty smart. It’s the consumers who falls into the bank’s trap that are stupid.

  3. Jerry says:

    I did this last year. I transferred $8,000 to a new credit card for 0% interest for 6 months. But get this, I didn’t have $8,000 in the old card I transferred from. It was more like $1,000. This meant that essentially I had $7,000 interest free cash! I never used the ‘new’ card at all and I closed the card when the 6 months was up.

    To sum it up, free credit rocks!

  4. John, are these 0% balance transfer credit cards available in Canada? If so, is it possible to take the offer and withdraw CASH so that you can invest it?


  5. Oops, sorry, I didn’t read your first post before commenting. 🙂 So your strategy is to pay off your balance on your other VISA, and use the cash that you would have used to invest/put in savings account. Clever. Make sure to read the fine print as to when the interest rate jumps back to 19%, they usually get people with that.


  6. martinezg says:

    This is the material that I like to see from you , its the material that drew me to your site;you have a way of writing that is informative and easy to comprehend not many people have that talent or may not have fully harvested yet. Getting banned from digg is the best thing for you because it’s not the audience you should be targeting; while it was a good start to get on digg now its time to think bigger and aim for a larger audience that can benefit from your experience and that audience is the financial wisdom seekers like me. I say you have a poll and ask the reader what they want you to write about and I bet it will be financial literacy. Now that you are banned from digg its time to get back to writing good informative material; material that is not designed for people that have a 15 second focus span!

  7. Kenric says:

    I read an article about using low finance credit cards to finance real estate. It basically shows that by using proper math and calculations and understanding the fees you can use these to your advantage.

    I wrote about it on my blog here:

    but the original article is posted on at:

  8. Benjamin says:

    Hello, do you know some credit card in Canada who offer those low interest ? Also, do you have link for those…. because i would like to apply

    In USA…

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