To illustrate how a balance transfer to a 0.0% APR account can be beneficial, let’s use an example account with a modest balance of $1,000 on a relatively civilized 10.0% APR. Then let’s say a credit card issuer offers you a balance transfer of this $1,000 to a 0.0% APR account at a 5% balance transfer fee. If you accept the new credit card charges you 5% of that $1,000, or $50, as a fee to your new account. While this may sound pretty steep at first once you understand how finance charges work, then you see how this can still equate to quite a deal in many instances.

How are finance charges calculated? Monthly finance charges on your statement are determined by multiplying the monthly percentage rate, or MPR, by the account’s average daily balance for the previous billing cycle. On many accounts the average daily balance is calculated by the mean average of the daily balances of the past 30 days. In a real-life situation this can get quite complex, so for the sake of simplicity in our example we’ll assume our $1,000 balance is also our average daily balance. Think of it as making payments and charges of an equal amount during a given month, and you’re fairly close.

To calculate the MPR on most credit cards is a simple matter of dividing the APR by 12 (10.0/12 = 0.833333). Divide this number again by 100 to express the MPR in decimal terms. For our 10% APR example, the result is 0.008333. Then take this number and multiply it with the average daily balance, in our example $1,000. The result is $8.33.

So, given that our hypothetical monthly finance charge on a 10.0% APR card with an average daily balance of $1,000 is $8.33/month, you see this roughly equals the $50 balance transfer fee in 6 months. In other words if you expect to carry a balance of $1000 on your 10.0% APR account for more than 6 months, a balance transfer to a 0.0% APR account is worth it, even with a 5% balance transfer fee.

Let’s look at this example again but at the maximum allowable APR of 29.99%, which many people find themselves stuck with. The MPR on a 29.99% APR card expressed in decimal terms is 0.024992. Given our $1,000 average daily balance, the monthly finance charge is $24.99. In this case the $50 balance transfer fee effectively pays for itself in just 2 months.

Of course before making a decision on any 0% balance transfer offer, run the numbers yourself based on the formula provided to see how it impacts you. Remember to consider the average daily balance instead of your current balance. It’s on your statement, usually near the finance charge detail. Then if it looks good, do it!

-Jennifer Davide

According to a recent report from Bloomberg, Bank of America intends to raise balance transfer fees from the industry standard 3% to 4%, a new high for this growing source of fee revenue for banks.  This 30% increase in balance transfer fees, scheduled to take effect on June 1st, marks a continuation of a disturbing trend that has dramatically increased the cost of balance transfers over the past 15 months.

The Rise of Balance Transfer Fees During the Credit Crunch

At this time last year, Bank of America offered no fee balance transfers tied to credit cards with 0% introductory rates that lasted 6 months.  In late 2008, Bank of America increased these fees across nearly every card, to a flat 3% fee with no maximum.

Bank of America was not alone in raising balance transfer fees last year.  Discover, which had offered no fee balance transfers for a number of years, began charging a 3% balance transfer fee with a $75 maximum in 2008.  Later in the year, Discover eliminated the $75 fee limit and began charging a full 3%.

Citibank was one of the first banks to charge a full 3% fee with no limits, though in early 2008 it still offered a handful of credit cards that charged no balance transfer fees. 

Impact on Consumers

Rising balance transfer fees pose a number of issues for consumers, though the main problem may be psychological.  Increasing balance transfer fees from 3% to 4% will cost consumers $10 for every $1,000 they transfer via 0% balance transfers.  A person with a 15% interest rate who transfers a balance to a credit card that offers a 0% APR for 1 year will save approximately $110 a year per $1,000 transferred if there is a 3% fee vs. $100 a year with a 4% fee.  In the long run, getting a 0% balance transfer is going to provide substantial savings so long as fees don’t reach 6%.  Unfortunately, a 4% fee may be a deterrent, causing consumers to defer transferring balances. 

It is this psychological effect that may do more damage to consumer wallets than the fee increase.  A consumer with $10,000 on a credit card with a 15% interest rate may get sticker shock when he or she see they will be paying $400 in balance transfer fees.  This may lead these consumers to overlook the fact that they will save about $1000 in interest by transferring their balance to a 0% credit card.

The Temporary Silver Lining

Impending increases in balance transfer fees signal, at least temporarily, that 0% balance transfers will not be pulled from the market altogether.  This is very good news, though the elimination and/or shortening of 0% introductory deals is definitely still a looming possibility.  In the early 2000′s, a standard balance transfer deal provided a 2.9% rate for 6 months to 1 year and included 3% fees.  Increasing competition for credit card customers drove these rates, along with the associated fees, down to zero when credit was flowing freely.

Unfortunately, this blog has been nervously anticipating the disappearance of 0% balance transfers for the past 6 months.  Fortunately, this has not come to fruition.  Nevertheless, anything and everything is possible these days, and securing a 0% APR should not be taken for granted.  Not only will fees be increasing, but it is entirely possible that interest rates will rise and introductory periods will decreases.

What Should You Do

If you’re sitting on a pile of high interest credit card debt, you should actively seek out a 0% balance transfer as soon as possible.  With fee increases on the immediate horizon, transferring balances today will save you an extra 1%.  More importantly, however, the potential for shorter introductory periods or increased teaser rates is still a massive threat.  With all these factors conspiring against consumers, it is more important than ever to lock in a 0% rate for a year.  Doing so will not only decrease your interest expense this year, but, more importantly, it will shorten the time it takes to get out of credit card debt substantially.

To learn more about current balance transfer offers and apply online for approval, please see the 0% balance transfer section of this website where you can compare current offers and apply online for approval.

To learn how much a balance transfer can save you, please see our balance transfer calculator.

American Express has shifted its balance transfer offerings dramatically over the past few months.  From 2005 to 2008, they offered fixed APR balance transfers for life with a number of cards.  However, as the credit crunch intensified last fall, they ceased providing these offers, replacing them with low rate balance transfers (2.9% for a year) that also carried 3% balance transfer fees. 

Update 2:  Industry Trends

If current industry trends continue, we may see the disappearance of the 0% rate altogether in the coming months, much as we have seen the disappearance of no fee balance transfers.  In all likelihood, this will be replaced with low rates of 2.9% that were common in the late 90′s and early 2000.  For consumers, this is not a good thing.  0% APR balance transfers provide a refuge for people with good credit scores who are working to pay down debt. 

As I’ve written before, and will surely write again, people contemplating a 0% balance transfer should act quickly before these offers become more scarce.  Credit card companies simply do not want to give consumers free money for a year, even if they are extracting 3% balance transfer fees.  And over the past few months, credit card companies have gotten stingier.  Nothing has occurred to change this.  In fact, the financial chaos engulfing all the major credit card companies will in all likelihood lead them to get even stingier.  Just take a look at the stocks of companies like Capital One, Discover and American Express.  As these continue to drop, so will the availability of options for consumers.

Stock Quotes:

http://www.google.com/finance?q=NYSE:COF

http://www.google.com/finance?q=axp

http://www.google.com/finance?q=dfs

While this is yet another setback, the removal of this offer is not the worst news for most consumers.  In fact, it may save consumers money in the long term.  The issue with this card, like all credit cards that offered no fee balance transfers for 6 months, lay in the fact that after the 0% period expired, the interest rate jumped to 14.99%.  Thus, unless you repaid your outstanding balance in 6 months, you may have ended up giving back all the balance transfer fee savings by paying interest.

A year ago, it was very possible to transfer balances from card to card and keep 0% rates going for years at a time.  However, credit card companies have really cut back on the availability of 0% offers, and most consumers will find it difficult to do balance transfers every 6 months.

Thus, the best balance transfer offers for consumers remain credit cards that offer a 0% APR for a full year on purchases and balance transfers.  While some will shrug at the idea of paying the 3% balance transfer fee, the money that can be saved on interest over the course of a year more than offsets this nuisance fee.

With no credit cards offering no fee balance transfers for more than 6 months, and credit availability becoming an issue, the risk involving in opting for a no fee balance transfer over a low fee balance transfer is incredibly high.  Here are just a few drawbacks to current no fee balance transfer deals:

1. Current offers only last six months, and don’t include the time it takes to process a balance transfer.  This can be up to one month, which not only reduces your 0% period to 5 months and shaves 10-15% of the savings you would get during that period.
2. With uncertainty in the credit markets, it may not be possible to get a 0% APR for a full year after the 6 month intro period expires. 
3. The only no fee offer from a major bank comes from the very troubled Washington Mutual.  This offer, the ESPN Visa, has a variable rate of up to 23.49% after the 0% period expires.  Since applying for a credit card has a small negative impact on your credit score, it is feasible that you could end up with a higher interest rate after your balance transfer than you had before it.

Given all these drawbacks, choosing a 0% no fee balance transfer card can end up costing a lot more interest than it would save in fees.  Here are a few examples:

1. If you transfer $4000 from a single credit card, you would save $75 in fees versus a low fee balance transfer card.  If your current rate is 12%, you would then save around $240 on interest during the first six months.  However, you would essentially end up repaying that amount during the next six months, depending on how much of your balance is repaid.  If, however, you paid the $75 fee and got a 0% APR for a full year, you would save $430 over the course of a year.  Clearly, paying a balance transfer fee is a much better option.
2. If you transfer a total of $4000 from two cards that each have balances of $2000, you would pay $120 in fees with a low fee card (3% of each transaction).  However, at the end of a year, your total savings would be $385 with a low fee card as opposed to about $0 with a no fee card that only offers a 0% APR for 6 months.

Clearly, while saving $75 to $120 on fees may seem like a good deal, securing a 0% APR for a full year provides significanly more value.  The key, however, is to stick with a card that offers low fee transfers (i.e., 3% with a maximum of $75 as opposed to 3% with no limits.)  Presently, the most prominent company offering low fee balance transfers is Discover. 

To calculate how much you can save with a low fee balance transfer credit card that offers a 0% APR for 1 year, try our balance transfer calculator.

The removal of these three offers from the market is not surprising.  Just about every credit card company has stopped offering no fee balance transfers since the beginning of this year and most have raised balance transfer fees substantially.

Currently, the ESPN Visa, a Washington Mutual credit card, continues to offer a 0% APR for 6 months on no fee balance transfers.  However, most people will save more money by opting for a low fee balance transfer offer.  Additionally, many credit card companies have increased their requirements to qualify for 0% offers, and with the economy’s future uncertain, it may be very difficult to get approved for a new 0% credit card when the 6 month intro period expires.

Thus, we recommend applying for a credit card that charges low fees and offers a 0% APR on balance transfers and purchases for a full year.  You can learn more, compare current offers, and apply online at our main site, www.smartbalancetransfers.com.

The ESPN Visa is a sports affinity credit card that offers consumers a range of sports themed rewards.  Aside from offering no fee balance transfers, this card also offers new customers the following benefits:

• 2,500 Bonus Points upon first card use within one year.
• Rewards start at just 2,500 points.
• No annual fee.
• Earn 5 points for every $1 you spend on purchases from ESPN, including ESPN Shop, ESPN Zones, ESPN Sports Concierge Service, and more.
• Earn 1 point for every $1 you spend on other purchases.
• Earn tickets and VIP Access to Sporting Events, Sports Merchandise and Collectibles, Retail, Dining, and Travel Rewards through the ESPN Total Access Rewards Program†.
• Use the FREE ESPN Sports Concierge Service to buy hard-to-get tickets, arrange travel to sporting events, or create your own ultimate fan experience.

You can learn more about the ESPN Visa by viewing the online application or compare other balance transfer credit cards in the credit card offers section of Smart Balance Transfers.

What is a low fee balance transfer?  In a nutshell, a low fee balance transfer is one with a limit on maximum fees.  Currently, all major credit cards are charging a 3% balance transfer fee per transaction.  However, some credit cards have no limit on balance transfer fees, while others cap fees at $75.

Finding a low fee balance transfer credit card can provide a great deal of savings.  For example, if you transfer a $5000 balance to a credit card that has no limit on balance transfer fees, you would spend $150 in fees.  The same balance transfer, if done with a low fee balance transfer card, would only cost $75.

We have compiled a complete list of balance transfer credit cards here for easy comparison.

Even though balance transfer fees are now unavoidable, the amount of money you can save with a 0% APR balance transfer is still significant.  For example, if you have a $5000 balance on a credit card with a 12% interest rate, you can save over $620 this year on interest.  If you factor in the balance transfer fee, you still save over $550 on interest.

To find out how much you can save with a 0% APR balance transfer, check out our balance transfer calculator before applying for a new credit card online.

Here’s the problem.  Most credit cards charge a 3% balance transfer fee with a maximum fee of $75.  Thus, if you transferred a large balance of $10,000, your balance transfer fee would be $75.  With the new fee structure of the Bank of America Platinum Plus, the fee on a $10,000 balance transfer would be $300, or 4 times the maximum fee most other issuers would charge.

The elimination of this no fee balance transfer credit card from the market has left only one current offer available to consumers looking to save money on balance transfer fees.  And, based on the way credit card companies have been behaving, it is only a matter of time before the final no fee balance transfer credit card is gone.

What’s the best balance transfer option now?

As I write this, Citi still offers one no fee balance transfer credit card (see the no fee balance transfers section of SmartBalanceTransfers to learn more).  If, however, you need to transfer a balance from a Citi card, there are no current fee free offers.  If you find yourself in this position, or cannot get approved for the Citi no fee credit card, Discover and Chase still offer 0% APR balance transfers with $75 fee limits.  Over the course of a year, these credit cards will provide hundreds, if not thousands in savings.  Sure, you’ve got to pay a little more in upfront fees, but most reasonable people would much rather pay 3% in fees than 15% in compounding interest.

Hopefully, this decidely consumer un-friendly trend will end soon.  However, with the credit crunch still looming over everyone’s head, it looks like deals will get worse before they get better.

 Now, the savings one gets from transferring a $7500 balance from a 14% credit card is over $1000.  However, if you pay balance transfer fees, the amount would be reduced to around $800.  Now, while balance transfer fees are by no means deal breakers, they do help boost savings (in this example, by 20%).

 Given our stance on no fee balance transfers, it should come as no surprise that our selection for “Best Balance Transfer” offers no fees on balance transfers and a 0% APR for 1 year.  And the winner is…The Citi Professional Cash Card.

Below you can vote on the best balance transfer credit cards.  You can compare all of the offers listed in the 0% APR Balance Transfer section of our website and apply online for approval.

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The runners up are credit cards that offer a 0% APR on balance transfers for 1 year, a 0% APR on purchases as well as low long term APRs. Cards that fall into this category are the Discover More Card and the now defunct Chase Platinum Card

With credit markets tightening, it is becoming more difficult to get approved for a good 0% APR balance transfer credit card. Thus, we suggest that anyone who carries a balance on a high interest credit card take action soon to lock in a 0% rate before the banks get stingier.

To compare all current balance transfer credit cards, including our picks for the best balance transfers, visit the credit card comparison section of SmartBalanceTransfers.

Also, feel free to post a comment or shoot us an email with your opinions.