0% Balance Transfer Dos & Donts

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  2009, balance transfer durations fell to an average of 6 months and balance transfer fees rose from 3% to 5% in many cases. In 2010, credit card companies started offering longer 0% rates and this trend continued into 2011, as some balance transfer offers began offering an 0% rates lasting as long as 24 months. Thus far in 2012, credit card companies have been pulling back, but 0% rates lasting up to 18 months are still readily available.

Do get a Long Lasting 0% Rate While You Can: Most credit card companies are now offering 0% rates for at least 12 months. However, a few 0% for 18 months or longer balance transfer offers have been popping up. If you can get one of these, apply as quickly as you can. Just be careful when reviewing the fine print. You may get approved for one of these offers, but only offered a 0% APR for as little as 6 months. (I try to point these offers out on the site wherever possible.)

Do pay balance transfer fees: The days of no fee balance transfers are over, although a few such offers will pop up on a limited time basis every now and then. Most of the time, however, to get a good zero percent 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% on interest 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 on interest are close to 50%. From this angle, 5% balance transfer fees aren’t such a bad deal. However, don’t settle for 5% fees unless you’re getting a very long 0% APR, as many cards have recently reduced fees back to 3%.

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.

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. It is always best to play it safe and wait until your card arrives in the mail before committing to a new card’s terms and conditions.

Don’t wait for better deals: Right now, balance transfer credit card deals are about as good as they will be for some time. Credit card companies have become less particular about who gets approved and competition has led them to extend zero percent rates beyond the historical average of 12 months. If you’re sitting on a high interest balance, it is best not to let that debt grow while waiting for something better to appear. The present crop of balance transfer offers are actually better than they were before the credit crisis, so it is unlikely that credit card companies will extend rates beyond the current lengths.

Final Thoughts: Having covered the credit card industry for over seven years, I’ve seen a tectonic shift in the business. Things were really ugly in 2009 and only slightly better through most of 2010. However, since late 2010, balance transfer offers have improved tremendously. While the current crop of offers available in 2012 is not quite as good as they were in 2011, good money saving deals can be found.

For additional information on current offers, please see the 0% APR Balance Transfer section.