Wednesday 30 August 2006

Zero [%] Transfer Offers [Part iii]

My $6000 0% for 6 months transfer offer for my new Coles Source MasterCard arrived safely onto my NAB VISA account - it appeared as a Credit on my NAB account the day after the amount was charged to my Coles Source MC. It was a bit of a shock to see a four thousand dollar credit balance on my VISA account - I usually run up about $1500-$2000 on the card each month and pay it off in full (so no interest charges), so the $6000 transfer means that I can afford to pay an extra $2000 each month off my Citibank RediCredit balance for the next three months. The Citi line of credit account was used to make some tax deductible investments in June (so I get the tax deduction up front), but even though the interest is tax deductible, at 11% it's worth using the free money from the balance transfer for six months. Unfortunately having to do it via a credit to my VISA account means that it will take three months for the entire $6000 to come off my RediCredit balance - so for the six months period I'll save interest on $2000, $4000, $6000x4 - so the average is $5000 reduction in the balance being charged 11% - so I'll save $275 in interest payments. Even after allowing for getting 40% back as a tax refund this means the zero balance transfer offer is worth $165 - for about 1 hour spent filling in forms etc.

I have to make absolutely certain that I pay off my Coles Card balance in Feb (the offer period ends 22/2) otherwise they'll start charging the cash advance rate on the balace transfer amount. I also can't charge anything to the Coles card while the balance transfer hasn't been paid off, otherwise it will be charged interest (any payments come off the balance transfer amount first). But this isn't a problem as I normally charge everything to my NAB VISA card to earn FlyBuys points.

I've now also applied for a Virgin Money Card which has a similar 6 months interest free balance transfer offer. They've approved the application, but I just did the 100 pts identification paperwork at the post office yesterday and mailed copies of some rental and dividend income statements (I had to photocopy 30 pages of dividend statements!). I won't know the credit limit until they process this, but I asked for a $6000 balance transfer to my NAB VISA account - we'll see if this goes through, and when.

As the cash flow benefits of this balance transfer wouldn't kick in for 3 months I'll have to check with NAB how a cash advance on the VISA card would be treated when I have a Credit balance on the account. If I can withdraw the $6000 immediately to pay off my Citibank account, so much the better.

All this balance transfer action is only worthwhile if you can use the amount to save interest on some existing credit balance - but most people would have a home loan, margin loan or similar to apply it to (even if it has to go indirectly, as I've done, by diverting normal monthly credit card payments into the desired loan account). You also have to be able to pull the money back out at the end of the period so you can pay the balance transfer off before it starts costing you interest.

It also wouldn't be a good idea if you needed the credit elsewhere - for example when applying for a home or investment property loan they ask for all your credit card limits - they treat them as existing debt even if you have no current balance, as you could utilise the credit at any time. I don't have to worry as I'm already fully geared in real estate, and have established all the margin lending credit limits that I need.

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