Balance Transfer Credit Cards Ending?

The Balance Transfer Lifeline: During the better part of the past decade, consumers have been able to utilize 0% APR balance transfer credit card offers to refinance high interest debt. For many, the 0% balance transfer has been the difference between credit card default and getting out of debt. Unfortunately, credit card companies have been cutting back on many of the benefits of balance transfers. Soon, the 0% balance transfer may no longer be an option for most, if not all consumers.

Balance Transfer Deals of the Past: When credit was flowing freely through the economy, credit card companies competed for your business by offering the longest 0% rates. Many consumers took advantage of these balance transfer deals, moving from one 0% credit card to the next, deferring interest expenses for years at a time. Some consumers even engaged in what came to be known as balance transfer arbitrage, where they would use a no balance transfer fee credit card that offered a 0% rate and a high yield savings account to earn 3-5% interest on money they were borrowing for free.

Unfortunately, no fee, 0% balance transfer offers started to disappear in late 2007 and many credit card companies raised balance transfer fees from 3% with a maximum of $75 to a full 3%. Recently, many companies have raised these fees to a full 5%.

Even with increased balance transfer fees, consumers still stood to benefit substantially from 0% balance transfer rates that lasted one year. During this time, a person could have saved around $100 for every $1,000 transferred from a credit card with a 14% interest rate to one with a 0% rate for 1 year.

Balance Transfer Trends: Beginning in the fall of 2008, credit card companies began reducing the length of balance transfer offers and more companies increased balance transfer fees. By December, nearly every zero percent balance transfer credit card had a full 3% fee. Despite the rise in balance transfer fees, most credit card companies were still offering 0% interest rates for a full year. However, credit card companies became more selective when it came to applications, and gradually, more and more consumers with good credit were unable to secure 0% rates for more than 6 months.

While the credit card bill was working its way through Congress, credit card companies embarked on an historical interest rate increase spree. Consumers with good credit and solid credit histories were opening the mail and discovering their interest rates had increased by 25-50%, sometimes more. At the same time, credit card companies were slashing credit limits, causing more pain for consumers.

As a result of these harsh rate increases and credit limit decreases, many consumers saw their credit scores lowered dramatically. People with excellent credit awoke to find that they barely had good credit. And those with good credit found themselves faced with sub-par credit scores because a credit limit cut or account closure had changed their risk profile on paper.

Consequently, getting approved for a balance transfer credit card became more difficult during the early spring of 2009. However, a variety of 0% offers lasting for 12 months still existed.

Balance Transfers Today: As summer approached, credit card companies struggling to deal with record default rates and new credit card regulations are changing the way they do business in fundamental ways. To the great misfortune of consumers, the first and most cost effective way to increase profitability in the short term is to eliminate 0% balance transfers as a marketing tool. In the past, the 0% balance transfer was considered a great marketing tool to bring in new customers. Today, credit card companies don’t even want the customers they have, let alone new customers with pre-existent credit card debt.

Consumers carrying credit card debt are likely to face difficulties obtaining balance transfer credit cards that offer 0% rates for the foreseeable future. In fact, 0% APR balance transfers may never be the same. Fortunately, there are still a few companies offering 0% balance transfers for up to 1 year, but soon, the balance transfer option may no longer be available to consumers who need it most.

Updated 14 December 2009