Balance Transfers - Savvy Style

Post featured in the 119th Carnival of Personal Finance, hosted by Blunt Money. I thought I'd put together one post that has all the steps and processes I follow when doing an app-o-rama or even a small round of balance transfers. I've been doing this for years, and I think I have all the kinks worked out of the system and have a process that is pretty easy for me to manage. This post comes with no warranties or guarantees of any type. Do this at your own risk. Tools you will need: Yodlee MoneyCenter - VERY important. This needs to be set up with all your credit card accounts. A copy of your credit report (if this is your first time, if you already have MoneyCenter setup or a comprehensive list of your credit cards and their limits, you won't need this) A Bank of America credit card with Bill Pay, or some other type of bill payment system that allows you to pay credit cards. It helps if you can pay all cards in one place and if you can pay them with another credit card. If this is your first time, you need to read this thread on FatWallet to learn the pitfalls of balance transfers. It is not a risk-free endeavor. A list of cards you want to apply for. I recommend you start here. Don't forget to have some business cards on your list, and remember that you can (and should) apply for 2-3 cards per provider. That means 2-3 Chase personal cards, and 2-3 Chase business cards, etc. A high yield savings account (Emigrant, ING, FNBO, Countrywide, HSBC, etc.) as well as a checking account. Ideally, you would have an account this is used only for 0% BT money, as it is easier to not touch any of the money that way. If you plan to have more than $100,000 in BT money, you will want more than one account. Steps to follow: 1. Make sure you aren't going to be applying for an auto-loan, HEL, mortgage, or any other type of loan product for at least the next year. It's also safe to say that if you are going to apply for a job or apartment, or will be switching insurance providers, that you should NOT be pursuing an app-o-rama. 2. One month prior to your app-o-rama, contact all your current credit card providers and get all the credit limit increases you can WITHOUT A HARD PULL. For instance, American Express will give you $24,900 (no more) automatically without doing a credit pull, via their website. Even if you aren't using American Express for balance transfers, this credit limit increase will make your credit utilization look better and help your credit score. 3. Once you have your list of cards to apply for, sit down in one day and apply for all of them. This is important, and I repeat, do them all in one day. Many you will not get instant approval on. Do not fret, you will still get many cards. 4. Wait for all the cards to come in the mail. Sort them by provider and type. 5. Once you have heard a response from all cards of a certain type (ie, Chase personal cards), call and start activating. Each time you call, confirm with a CSR the rate, the end date, and the fee. Identify the card that has the best rate/date/fee combo, and call back and have all your credit lines consolidated onto that one card. Some providers can consolidate instantly (Chase, usually), some it takes 24-48 hours. Some you will have to call over and over again until you get a CSR who will let you do this. Cut up cards you are closing. 6. Decide if the balance transfer is worth it. Usually a balance transfer with a fee and no cap is not worth it. Balance transfers below $5,000 are usually not worth it (unless this is your first time and you are still building limits), and anything under six months is typically a waste of time. We typically have a $15,000-$20,000 minimum, with most of ours at around $30,000-$36,000, but we have had to build this up over time. Don't forget to factor in income taxes on the interest. 7. BEFORE YOU TAKE OUT THE BALANCE TRANSFER, make sure you set up the card online on the provider's website (I recommend paperless statements - otherwise this process is a tree-killer), set it up in Yodlee (with the end date and the terms as part of the card's nickname, as well as new bill notifications turned on), and set it up in your Bill Pay software (again with the end date and terms as part of the name or notes). This usually only takes a few minutes, but it is vitally important to do all this while the information is still fresh in your head and in front of you on paper. At this time, I also cut the magnetic strip of the card, leaving the number and all the necessary phone numbers. This is just to help me remember not to use the card, and makes me feel safer. If I ever decide I do want to use the card for purchases, I can just call and get a new one. Keep the card in a safe and secure place. 8. Keep track of your balance transfer fees. If you itemize and you are doing this strictly for investment purposes (not to pay off debt), you can deduct these fees from your taxes. 9. Chase usually sends a balance transfer check with each new credit card. I typically use those, written to myself and deposited at my credit union, after confirming the rate/date/fees with the CSR. Citi has an online balance transfer feature, where they will mail you a check. It takes 7-10 days and I just have it made out to me. Discover also does checks, but you have to request them. I did a BT once with MBNA and they also sent me have a check. I'm not sure about Amercian Express or other providers. I have never had a credit card company transfer directly to my checking account and I probably never will. I have heard from people that they have messed it up (sent to the wrong account), or that it takes 4-6 weeks for the transfer to come through. Just give me the check and I will deposit it myself thankyouverymuch. 10. As soon as check clears, transfer the money to your high yield savings account. Do NOT use this money for anything other than paying back the credit cards. 11. When the bill comes (you will get an email from Yodlee if you did things correctly), you need to pay the minimum on time. I always pay mine as soon as I get the email, just so there's no chance I'll forget. If you don't pay your bill on time, you will be in a world of hurt and you will be risking ALL of your balance transfers, not just the one. This is where it is nice to have a credit card set up for bill pay, that way you only have to transfer money out of your high-yield account once a month to pay the bill on your bill pay card, not on each individual card. Alternatively, you can try to make the payments out of your regular income, and let the balance in your high yield account keep growing that much faster (this is what my brother does). Some people say you should pay $1 more than the minimum, or round up to the nearest $100, but I personally have found no benefit to either of those strategies. 12. Check your statements each month and make sure you are not being charged finance charges. I've never had this happen, but I still check. It's very quick to do in Yodlee. 13. Pay the total balance off before the due date! Again, vitally important or all your profits (and then some) will go down the drain. I'm paranoid and usually pay it off several weeks early. 14. Watch your interest add up. Don't forget you will have to pay taxes on the money you are earning. 15. Lather, rinse, repeat. Remember that the benefits of subsequent app-o-ramas are usually better than the previous app-o-rama. I remember the first time we broke $100 in monthly interest and how exciting that was. As you can see, the first time can be quite a bit of work. Setting up new accounts and Yodlee, learning the ropes, researching, reading... but after that, and once your system is established, it is really quite easy.