1.)  Do you carry a balance from month to month?  If the answer is yes, the best credit card for you is likely one that offers a 0% APR on balance transfers.  With a balance transfer, you can move your high interest credit card debt to a card with a low promotional rate.  During the 0% period, you can use the money you save on interest to reduce your overall balance, which can really help reduce credit card debt quickly.  Plus, if your credit card company raised your interest rate last year, there’s a good chance you might get a lower long term rate once the 0% period expires. 

2.)  Do you plan on making purchases you intend to repay over time?  If you don’t currently have high credit card balances, but know you will be making a large purchase or a number of purchases in the near future, look for a credit card with a 0% APR on purchases.  Many credit card companies offer 0% rates for up to 1 year on purchases, and you can use this period to gradually pay down credit card balances without accruing interest.

3.)  Do you pay your card in full every month & use your credit card frequently?  If you pay your credit card in full every month and use it every time you can, the best credit card for you is likely one that offers credit card rewards.  Cash back and airline miles are the most popular types of rewards cards, and many no annual fee rewards cards are still available (though this may change as a result of the CARD Act.)  When choosing a rewards credit card, look for one which provides extra cash-back or miles on everyday purchases like gas or groceries.

As you can see, there really is no best credit card for everyone.  When you search for a credit card, you need to focus on your useage style and seek out deals that will reduce the money you spend on interest or increase the money you earn for using your card. 

-Jennifer Davide

For more information on current credit card offers, please visit the credit card comparison section of Smart Balance Transfers, where you can review credit card deals and apply online.

Since its passage last spring, the CARD Act has done nothing but damage the balance sheets of American households and will likely prove to be a large impediment to our country’s recovery.  Here are just a few reasons why the CARD Act, despite its noble intentions, is a colossal failure.

1.)  Interest Rate Increases:  Although the Prime Rate has been at historically low levels since December of 2008, variable credit card interest rates, which are generally tied to the Prime Rate, are higher today then they were in December of 2008.  Many Americans saw their interest rates doubled or tripled during 2009, as some credit card companies raised rates as high as 29.99%. 

On the surface, this can be sold as the actions of greedy credit card companies.  In reality, these rate increases were defensive moves taken because the new laws now limit the ability to re-adjust interest rates based on risk.  Knowing they would be prohibited from raising rates on delinquent and problematic borrowers in the future, the banks proactively raised rates across the board.  And American consumers are paying the price, using dollars that may have been spent to stimulate the economy to stay above water on their credit card debt.

2.)  Credit Card Limit Decreases:  Perhaps the most common consumer complaint in recent months, credit limit decreases have become one of the few remaining tools banks have to manage credit card risk.  Consumers deemed risky are seeing their credit lines pulled when they need them most, removing both an economic safety net and the stimulative effects the use of these credit lines could be having on the economy.

To make matters worse, credit limit cuts are likely damaging credit scores, as many consumers see their credit utilization ratios skyrocket.  Because credit utilization ratios account for about one third of credit scores, many borrowers, through no fault of their own, are being pushed down the credit quality ladder.  This is increasing the cost of all loans and leaving many unable to qualify for the low mortgage rates that should be fueling a stimulative housing recovery.

3.)  Access Denied:  With sky high interest rates and reduced credit limits, consumers seeking out new credit cards for 0% APR balance transfers or simply to ease them through a financial rough patch are finding that, if they can get access to a new credit card, the terms are much less generous than they were a year ago.  18 year-olds can vote and buy cigarettes, but they need a co-signer or “sufficient income” to get their first credit cards.  Once again, access to reasonably priced credit is being shut off and the once steady flow of credit from banks to consumers to businesses is now a mere trickle.

While it is difficult to argue against the reality that credit card reform was long overdue, it is relatively easy to argue that the timing of the CARD Act was disastrous.  In the long run, the CARD Act will provide useful consumer protections.  Unfortunately, the cost of protecting American consumers in the future is being paid by American consumers today, at a time when they can least afford it.

-Jeffrey Weber

A credit card’s terms and conditions, part of the cardholder agreement, is a legal document that you are bound to as soon as you use your new card. Have you read the fine print and legal jargon contained in this contract? If you are like most Americans, you haven’t. Knowing your rights and obligations under this agreement is the only way to protect your money and your credit from harm.

The first thing to look at when you receive your new card is the interest rate, or APR. Is it the same as the offer you accepted? Many credit card offers state the offered interest rate “can be as low as” the rate you expected. However, when your card arrives, it may come with a higher APR because your credit score did not qualify you for the lower rate. Also, look for the terms “promotional offer”. This may indicate that the rate on your card will increase after an introductory period.

One big improvement in credit card consumer protection came with the passing of legislation in 2004 that mandated a section on every credit card offer include a clear listing of the important terms for that card. This section, called the “Schumer box” lists the APR, credit limit and other important pricing information that consumers need to know about the credit card. Unfortunately, not all of the details of the terms and conditions are listed in this box. You still need to read the entire agreement to know your obligations, as well as the changes a credit card company can impose on you.

Credit card companies frequently send notifications of a change in the terms of the credit card agreements to their customers. How many of us read these changes thoroughly? The credit card industry, more than any other, has the ability to legally alter the terms of the contract we sign with them at any time. With a simple notification in the mail, our previous agreement is void and the new terms are in place. Pay close attention to these changes, and you can avoid a costly surprise.

For better or worse, we live in a credit card economy. It’s in the best interest of all of us to know the details of our card agreements. We are legally bound to abide by the contract we sign when we get a credit card, whether we read it or not. Make the informed decision to know what you’re getting into before you use your new card.

-Jennifer Davide

Editor’s Note:  Checking credit card fine print is especially important when you apply for a balance transfer credit card.  For example, if you apply for a card that a card that advertises a 0% APR for up to 1 year, you might discover that your rate only last six months.  This can make a huge difference in the amount you save.  So before you call the number on the back of your card to activate it, make sure you the card in your hand has the terms you desired when you applied for it. 

For more information or to apply for a 0% APR balance transfer credit card, please see the main section of Smart Balance Transfers.

Before the CARD Act, credit card companies loved to get their customers to transfer balances from other credit cards to their company’s cards, especially if the customer had a balance.  The reason credit card companies loved these balance transfers was that, before the CARD Act, they could apply all payments above the maximum to the balance with the lowest rate.  Thus, a person with a $5,000 balance at a 14% rate who transferred $5,000 to a 0% rate would have their payments reduce the balance with the 0% rate, rather than the 14% rate.  If that person paid down their credit card balance by $5,000, they would owe $5,000 at 14%.

Under the rules of the CARD Act, payments are now allocated to the balance with the highest rate.  This reduces the incentive for banks to lure their customers into doing low rate balance transfers, which is why you may have noticed a sharp decline in these mailings. 

Joyce, the visitor who brought this issue to my attention, received a 3.99% balance transfer offer from Bank of America that a customer service representative encouraged her to take advantage of.  Looking to reduce her interest expense, she opted to accept the offer and transfer two balances.  Unfortunately, the bank had a change of heart in the midst of processing the transfer. 

According to Joyce, the bank decided that she, “owed too much money,” and decided to not only revoke the balance transfer deal, but reduce the credit limits on two of her accounts.  When she tried to explain to a manager that she was working to reduce her debt, the manager simply insisted that she could, “theoretically turn around and charge more and get right back into debt again.” 

Joyce’s story is a clear sign that it is best to beware banks bearing gifts.  Balance transfer deals are great ways to save money.  However, the best balance transfer offers are unlikely to come from the banks that already have your business.  The best balance transfer deals, which generally offer 0% interest rates for 1 year, are likely to come from a new credit card company eager to have you as a customer.

-Jeffrey Weber

For more information on 0% APR balance transfers, please see the main section of Smart Balance Transfers, where you can compare current offers and transfer balances online.

Unlike the major banks that issue credit cards, Discover is primarily a credit card company with an online banking business.  As a stand alone credit card company, Discover couldn’t risk angering its customers and damaging its reputation.  So, while other banks could afford to alienate customers, Discover made a very smart decision to treat their customers with respect. 

Unfortunately, Discover hasn’t been recognized for their humane behavior.  News stories about credit card companies behaving badly fill this blog and mainstream media outlets.  But a story about a credit card company acting  justly isn’t attention grabbing–that is the reason you haven’t heard too much about Discover in the past year.  Hopefully, more consumers will come to recognize how truly commendable Discover’s behavior during the credit crisis was. 

J.D. Power’s annual survey often ranks Discover second in customer satisfaction.  But as someone whose job requires reading and responding to stories from people whose financial well-being was jeopardized by unscrupulous credit card companies, I can say without equivocation that Discover is not only the best credit card company around but, more importantly, the only one which respects and cares about the relationships it has with its customers. 

-Jeffrey Weber

To learn more about Discover credit card offers, please see the Discover Card section of Smart Balance Transfers where you can compare current offers and apply online for approval.

At present, many major credit card companies are offering 0% interest rates for up to 12 months on balance transfers.  However, with some of these offers, only people with the best credit profiles actually get 0% rates for a full 12 months.  The remainder fall into the “up to 12 months” category, which can mean getting a 0% interest rate for as little as 6 months, thanks to some fine print trickery.  (My personal choice for the best balance transfer credit card offers a 0% for a full 12 months.)

Balance transfer fees are currently ranging from 3 to 5 percent, though 5% is becoming more common than 3% lately– the card I consider to be the best presently charges a 4% fee–and these fees are likely to remain the same, if not rise to 5%, as consumers stuck with high interest credit card debt have little choice if they wish to save money on interest.

While predicting the future of balance transfer offers can be a fruitless task, key trends have been in place for over a year.  Those trends point to shorter 0% interest periods and sustained high fees.  The days of no fee balance transfers are long gone and, should the economy continue to falter, 0% interest rates may be replaced with 3% introductory interest rates.  For the time being, however, getting a 0% interest rate on balance transfers for a full year is still possible.  Hopefully, the same will be true when April rolls around.

-Jeffrey Weber

For more information on current 0% interest balance transfer offers, please see the main section of Smart Balance Transfers, where you can compare deals and apply online.

Varying studies indicate that the average household carries nearly $11,000 in credit card debt on credit cards with average interest rates of around 14%. Lowering your APR by even 5% on that amount would mean an annual savings of almost $600. Taking advantage of a 0% balance transfer offer would save more than $1,500 in the first year. It’s important to keep in mind that many of these balance transfer offers come with a one-time fee attached, usually around 3 to 5% of the total, but even with the fee, the amount you can save is significant.

Let’s take a look at three scenarios where credit card holders can save money by transferring a balance to a lower rate credit card.

• A card holder with a balance of $10,000 and an APR of 12% would save $1,268 in the first year by transferring his balance to a 0% interest card.
• A family with two cards totaling $15,000 and an average APR of 17% would find their annual savings to be $2,758 if they transferred their balances to a 0% interest card.
• A couple whose combined credit card debt is $18,000 and who pay an average APR of 25% on their cards would realize a savings of more than $5,000 a year in interest by completing a balance transfer to a 0% interest card.

In all of these scenarios, you can see that the average savings is significant – even considering any balance transfer fees. Suppose these individuals found a balance transfer offer that lowered their rates by only 10% each, their respective savings would still be $1,066, $1,674 and $2,159 per year! So, as you can see, it pays to research your options and shop around for a lower interest rate credit card. The savings you can experience by transferring your balances could be a pleasant surprise.

Just don’t wait too long to get started with a balance transfer.  The new credit card laws may lead banks to decrease the length of 0% balance transfer offers, making the balance transfer option less valuable.

 -Jennifer Davide

Before the CARD Act gained traction in Congress, typical balance transfer offers lasted for 12 months and charged a standard 3% fee, with a maximum amount of $75 per transaction.  Today, many balance transfer offers only last 6 months, and balance transfer fees range from 3 to 5% with no dollar limits.

Ultimately, the changes to balance transfer credit card offers have diminished the power of these money saving transactions.  In 2008, balance transfers were truly a free-lunch.  Thanks to the CARD Act, the bill for that lunch has come due.  Consumers can longer reap the large benefits they once did.  However, even with higher fees, balance transfers are still an effective tool in reducing interest expenses and, if used properly, in reducing the time it takes to get out of credit card debt.

In the past, just about everyone could benefit from balance transfers.  Today, however, 0% balance transfers provide substantial benefits to most people with interest rates of 14% or more.  Those with lower rates are both lucky and, unless they intend to fully repay their debt before the 0% period expires, likely better off keeping the good rate they currently have.

Consumers with interest rates of 15%, 20% or 25% will likely save around $100, $150, or $200 for every $1000 transferred to a new card with a 0% rate for 1 year and a 5% balance transfer fee.  This is no small amount and a good reason to consider a balance transfer if your current rate has recently been raised.  In a few months, getting a 0% APR for a year may not be possible, so acting now is important.  Balance transfer offers have become much less generous over the past year and in a few months, there may be few good deals around.

-Jeffrey Weber

For information on current balance transfer offers as well as recommendations, please see the credit card comparison section of Smart Balance Transfers.

Throughout 2009, credit card companies went on an interest rate raising binge.  Consumers with all types of credit, even very good credit, were slapped with often substantial rate increases.  These interest rate increases seemed to come out of nowhere, but were mostly due to the restrictions imposed by the CARD Act.  Prior to today, credit card companies could raise rates on customers who were delinquent to offset the potential risk they posed.  Knowing that this would no longer be allowed, credit card companies proactively raised rates on customers, causing substantial hardship for many.

Now that the days of interest rate increases have ended, consumers are looking at higher interest rates than they might have had were it not for the CARD Act.  And, with stipulations limiting late and over the limit fees, the cost of using credit cards is likely to increase for the foreseeable future as credit card companies adjust to the new rules.

In order to recoup billions of dollars in lost fee revenue, credit card companies may turn to annual fees or, less conspicuously, to slightly higher interest rates than they would have otherwise charged.  A 2% interest rate increase amounts to about $100 yearly in added interest expense to a person with a revolving balance of $5,000.  So, even if banks don’t charge annual fees, they can offer consumers higher rates that cost them more than a straightforward fee.

Ultimately, the benefits of the CARD Act may outweigh the drawbacks in the long run.  But the havoc this legislation wreaked on the balance sheets of American consumers will take years to justify the benefits new cardholders will reap.

-Jennifer Davide

Credit card debt is a fact of life for most Americans. In fact, one in three households carries credit card debt of more than $10,000. Add to this the fact that the average interest rate on credit card debt is nearly 15% and rising, and we can see a potential for economic catastrophe. One solution to this looming crisis is education – more Americans need to learn about the potentially destructive effects high interest payments have on their wealth, and what they can do about it. 

One solution that makes sense for many credit card holders is a balance transfer. Balance transfer offers are available from most credit card issuers and have introductory rates as low as 0%. For a reference of what a 0% balance transfer can mean to a credit card holder who carries a high balance, consider the following:

• A credit card holder with a debt of $5000 at a 15% interest rate and who pays a minimum payment of $200 per month toward the debt will take nearly 3 years to pay off the total amount.
• That same credit card holder who transfers his balance to a 0% interest rate for one year making that same $200 a month payment, and whose rate then returns to 15%, will have his debt will be paid off 5 months sooner… and will save more than $600.

What if the $5000 debt carries a 20% interest rate?

• The credit card holder who transfers his 20% debt to a 0% card for one year and makes his monthly payment of $200 will find his debt paid off 6 months sooner, for a savings of nearly $800.

These options for credit card interest and debt savings are available to any card holder with a good credit history. In these financially difficult times, any savings that we can reap from 0% balance transfers is worth taking. Knowing your options for saving money on your credit card debt can mean money directly back to your bottom line.

As noted in an earlier story about Citibank annual fees, the annual fee may be credited to certain accounts if spending is sufficiently high on the card.  However, many people have reported that they intend to close their accounts rather than pay the annual fee.

One serious drawback to closing these accounts is the impact such an act will have on credit scores.  Closing a credit card account, especially one with no balance, can increase a person’s credit utilization ratio if they have higher balances on other accounts.  It can also shorten credit history if this is the person’s only, or first, credit card.

Unfortunately, Citi is charging a relatively substantial annual fee, while other companies are continuing to offer no annual fee cards, making the decision to keep the card open a difficult one.  Thus, if one wishes to protect their credit score, one option to consider is opening a new credit card with a company that does not charge an annual fee.  This may offset the damage done by closing a Citi account, as it will increase available credit before the closing of the Citi account negatively impacts credit scores.  Opening a new credit card with a different company before closing the account may also result in better rates on the new card, as that account will be based on a better credit profile.

-Jeffrey Weber