When I sat down and took a hard look at the debt I was facing, I wondered to myself if there was an optimal way to pay off all my loans and credit cards. It was not enough throwing every last cent I had to pay everything off in its entirety as the interest charges that were being added to my principal was not helping me eliminate my debt faster. At one point, my $9,000 balance on my Mastercard at more than 18.5% APR was charging me almost $200 as minimum payment. More than 3/4 of that payment was to cover interest only!

I immediately go to my local bank for a consultation to see how they can help me. I was looking to consolidate my debt at possibly a lower interest rate. That way I thought, there will only be one payment made every month and it will be easier to keep track of my progress. Now the lady I had my appointment with wasn’t very helpful. She advised that with my current credit rating, job history, and credit history, the best I can hope for was a personal loan at 12.5% and the chances of getting this was very slim. I politely declined and walked away. Most of the interest rates I had for most of my loans were far below 12.5%.

In comes MBNA in my life and I was saved. I was browsing around a popular forum, RedFlagDeals, and found out about a 0% balance transfer promotion when you open a Platinum Plus Mastercard. Being the Money Monkey that I am, I applied online, and followed up on the phone a week after. The approval process was quick and painless and upon approval, the balance transfer was setup over the phone. I had it deposited to my chequing account and used it to pay off one of my higher interest loans (the Mastercard was already paid off at the time I applied for the MBNA card).

What’s the catch?

• The 0% interest rate only applies to balance transfers made in the first month or two
• The 0% interest rate is only in effect for one year starting on the day the card was approved
• There is a balance transfer fee between 1% and 2% of the total amount transferred but the folks at MBNA were able to cut it down to half of that if you ask politely (this was last year, October 2008, so things might have changed)

Now these guys at MBNA are not crazy. They are banking on the fact that most people are not diligent enough to pay the balance off by the time the promotion is due. After a year from approval, the interest kicks in at 18% up to 24% on the entire balance!

Who do you recommend this for?

• Newly grads with high levels of debt from school (assuming these grads have income to pay off the balance by the time the promotion ends)
• Investors
• Anyone who can and will pay off the debt before the promotion ends (use the money to purchase big-ticket items, or earn a return > 1% for one year)

Who is this not for?

• Anyone else who wants the money but can not foresee having enough cash to pay it off before it’s due will be eaten alive by the high interest rate – do not fall in to the trap!

In my case, I used the$10,000 to pay off some loans and as I save up money from my primary income to accumulate $10,000 by the due date (which is this November), I put the funds into an ING savings account that earns me money while it’s parked. I have calculated the total interest saved and total interest earned by using this 0% promotion to be almost $900 for the year. Not too shabby!