 0% Balance Transfer Dos & Dont's
Overview: Before the credit crunch and the government's intervention in the credit card business via the CARD ACT, balance transfer offers were plentiful, easy to get, and available to just about anyone. These offers tended to provide 0% rates for a full year as well as low balance transfer fees. During the first three quarters of 2009, balance transfer durations have fallen to an average of 6 months and balance transfer fees have risen from 3% to 5% in many cases. Given these changes, consumers looking to take advantage of balance transfer deals may benefit from taking these points into consideration.
Do get a 0% for 1 Year while you can: Most credit card companies are only offering 0% rates for about 6 months. However, a few 0% for 1 year offers have been popping up. If you can get one of these, apply as quickly as you can.
Do pay balance transfer fees: The days of no fee balance transfers are over. To get a good 0% balance transfer deal, you basically have no choice but to pay a balance transfer fee. However, even with these fees, a person can save anywhere from 25 to 80% with a 0% balance transfer. For example, a person with a 20% interest rate who pays a 5% fee to get a 0% rate for a year will save about 75% on interest. Even with a 10% rate, the savings are 50%. From this angle, 5% balance transfer fees aren't such a bad deal overall.
Do check your credit if you don't know your score: If you've suffered a credit limit reduction or an account closure, your credit score may have taken a hit. Checking your credit score can help you avoid getting denied for a balance transfer credit card and give you some insight into how you can improve your score. (You can view offers for free credit reports and scores here.)
Don't Transfer Balance Online: When you apply online, many credit card applications give you the option of transferring balances with your application. There are two reasons not to do this. First, credit card companies may reject your application if they don't want you to use your card for balance transfers. More importantly, though, credit card companies offer a range of long term interest rates that are not determined until after your application is submitted. Thus, when you initiate balance transfers online, you are doing so without any knowledge of what your long term interest rate will be.
Don't wait for better deals: Right now, balance transfer deals are about as good as they will be for some time. Credit card companies have become more particular about who gets approved and increasingly less generous with their introductory rates. If you're sitting on a high interest balance, its best not to let that debt grow while waiting for something better to appear. Better offers may not be back for years.
Final Thoughts: Having covered the credit card industry for over five years, I've seen a tectonic shift in the business. And the changes have all been negative for the consumer. Before the credit crisis, banks battled for new business. Now, many banks seem not to want their own customers, let alone new ones. With even more regulations slated to take effect in February of 2010, consumers seeking balance transfers need to lock in 0% rates before the word balance transfer is dropped from the business of credit cards.
Compare 0% APR Balance Transfer Credit Cards
Updated 7 October 2009 |
