The End of 1 Year Balance Transfers – A Credit Crisis Prediction that Fortunately Proved Untrue

Editor’s Note:  When this article was originally written, credit card companies were vastly scaling back on 0% credit card offers. Today, one year balance transfers are commonplace, as the best balance transfer offers in 2011 last as much as 21 months. Nevertheless, this article is a reminder of just how bad America’s credit crisis seemed at the time.

Editor’s Note: Today SBT learned a major credit card company will be reducing 0% balance transfer durations from 12 months to 6 months in a few days. If you’re reading this within the next 3 days, act quickly to take advantage of 0% for 1 year deals. In my opinion, this is a telling sign of things to come.

Original Article: During the past two years, Smart Balance Transfers has made some dire predictions about the credit card market. Unfortunately, most of them have come true. As predicted, balance transfer fees have risen dramatically and no fee balance transfers have become a thing of the past. Fixed APR balance transfer offers have been pulled from the market and, perhaps most importantly, balance transfer approval rates have declined significantly, particularly during the past seven months.

While most people relish in being correct, count me among the precious few that would love to have been proven wrong. Sadly, I have been correct on these predictions, and in very short time, my most dire of predictions will be coming true: 0% balance transfers will be reduced from 1 year to 6 months.

If you’re a balance transfer veteran, you probably understand how massive a development this is. If you’re new to balance transfers, let me explain how big an issue this is. I recently published a month by month chart detailing how credit cards that offer 0% balance transfer for 1 year can save a person with a 14% interest rate and $5,000 in debt over $400. The final savings number includes standard 3% balance transfer fees. Using this debt reduction study, that same person would only save $175 if the 0% period is reduced to 6 months.

Now, saving $175 is still a very good deal – and one that should not be passed on. But $175 is less than half of what could be saved with a 0% APR for a full year. This is not a good thing. Now, I also looked at the savings for 1 year if a person did two balance transfers. Once fees are taken into consideration, the total yearly savings one can realize by doing two consecutive 0% balance transfers is closer to $300, or close to 30% less than one could have saved with a single 0% for 1 year transfer.

The reason balance transfer savings get reduced is the transfer fee, which has to paid twice instead of once. And doing two balance transfers relies on a somewhat bold assumption: namely, that it will be possible to transfer balances again six months from now.

As a person with an inside view of the credit card market, I feel a duty to share my predictions with visitors like you. I don’t intend to cause alarm, but I do encourage people who can save money with balance transfers to do so as soon as possible. I’ve always considered balance transfers the free lunch of the credit card world.

For a while, the credit card market allowed for free lunches. But there truly are no free lunches and this reality is manifesting in the balance transfer world. Hopefully, you’re lucky enough to secure a 0% APR for a year when you read this. If not, take whatever 0% rate you can get. Because they won’t be around for long.