If you're struggling to pay down high-interest credit card debt, take note: zero-percent balance transfer offers continue to land in mailboxes. Even better news: The days of costly 5 percent balance transfer fees are ending.
Experts say these offers can pay off for consumers who shop for the best deal, who budget and who can stick to a plan to pay off the balance.
"There are quite a few offers out there," says Linda Sherry, director of national priorities for the nonprofit advocacy group Consumer Action. "It's not like everyone's getting 10 offers a week in the mailbox, but card issuers are back in the business of revolving lending and would like to have people carrying balances," she says.
After drying up during the recession, zero-percent balance transfer offers made a comeback over the past few years. Now, increases in consumer spending have pushed some issuers to offer slightly better terms, Sherry says.
While most offers still carry balance transfer fees, the highest fees have gone down. In CreditCards.com's annual survey of 35 balance transfer cards, the number of offers with a 5 percent balance transfer fee have steadily decreased. There were nine of them two years ago, seven last year and none in 2013. Now, most offers come with a 3 percent balance transfer fee.
You don't necessarily need pristine credit to take advantage of these offers, either, says Lisa Hronek, senior analyst for market research firm Mintel Comperemedia. Because there are so many of these offers out there, they're likely spread across a range of credit scores, she says: "Card issuers can play with things like credit limits if a person's credit profile is risky," says Hronek.
Two-headed balance transfer offers
A relatively recent twist on balance transfer cards includes offers that combine a zero-percent balance transfer offer with an introductory rate on purchases, usually also zero percent for the same length of time.
"These are everywhere -- issuers really seem to favor them," Hronek says of the hybrid offers, which she says made up about 65 percent of direct mail credit card offers sent to consumers over the past 14 months. However, the concept can become counterproductive to consumers trying to get out from under high-interest balances. It's harder to pay off the balance on a card if the same card allows inexpensive new purchases.
In fact, of the 35 balance transfer cards surveyed by CreditCards.com in April 2013 ( see a sampling below ), 28 cards offered an introductory rate for both balance transfers and purchases. In most cases, that rate was zero percent for both, with the two introductory periods lasting the same length of time.
Issuers are offering these hybrid zero-percent deals for two reasons: to lure in new customers and to get them making purchases with the card right away, according to Hronek. "They're trying to motivate new users to put that card top-of-wallet," she says.
Sherry agrees, noting that card issuers also do this so consumers will build up, rather than whittle down, their balances: "Card issuers can give people a freebie and get them used to paying with that card." That can trip up consumers if they're still carrying a balance at the end of the promotional period, then get hit with high interest. But, if used properly, these offers can be a really good deal for cardholders, Hronek says.
Consumers can expect these combo offers to keep rolling in during the coming year, too: "I'd expect them to remain prevalent," Hronek says.
Length of intro period decreases
The typical length of an introductory period has decreased since 2012, when several issuers had 21-month offers, Hronek says. This year, none of the cards surveyed by CreditCards.com offered that. Three cards, the Discover "It" Card, the Citi Simplicity Card and the Citi Diamond Preferred Card, offered 18-month introductory periods. Out of the cards surveyed, the most common time frames were:
- 15 months or billing cycles (11 offers)
- 12 months or billing cycles (10 offers)
- 6 months or billing cycles (5 offers)
This year, 25 of the 35 cards surveyed charged a 3 percent balance transfer fee, in some cases with a minimum fee of $5 or $10. Three cards charged 3 percent for an introductory period, then bumped the fee to 4 percent afterward. And six cards charged 4 percent from the start. Only one card (the Slate Blueprint from Chase card) offered no fee for an introductory period.
How to find the best balance transfer deal
If you do want to transfer a balance, you should shop around to find the best offer for you, experts say. Here are four things to consider when making comparisons
- Balance transfer fee. "Watch out for the fees -- they can be pretty hefty," Sherry says. For example, it would cost $150 to transfer a $5,000 balance with a 3 percent fee. Consumers should hunt for an offer with little or no balance transfer fee, Sherry says: "We do see these offers. Some companies want to get your business -- others want to get the fee." But fee-free offers remain rare. In addition to the Slate Blueprint card from Chase's fee-less promotion, the Pentagon Federal Credit Union Promise Visa also offered transfers with no fee, but at an introductory interest rate of 4.99 percent rather than zero percent.
- Other fees and features. It's also a good idea to look at other fees attached to the card. For example, is there an annual fee? Of the 35 cards surveyed by CreditCards.com this year, 29 had no annual fee. Of the six that did, most were rewards cards with an array of perks. Most annual fees ranged from $25 to $89, and a few cards waived the fee for the first year. The biggest annual fee came via the Visa Black Card at a whopping $495 per year plus $195 for each authorized user. In exchange, the card offers rewards at 1 point per dollar, 24-hour concierge service, access to VIP lounges in airports and other benefits. Many balance transfer cards also offer rewards and some also have sign-up bonuses, says Brian Riley, research director for CEB Tower Group.
- Length of introductory period. The rule here is simple: the longer, the better, Sherry says. A longer introductory period makes it more likely you'll be able to pay off your balance in full before you get hit with interest, experts say. Consumers should look for the 12- and 15-month offers that are plentiful this year, experts say. "It's very easy to get enticed with 0 percent, but if it only lasts a few months, then the savings isn't that big," Riley says.
- The nonpromotional interest rate. Look at what the interest rate will jump to after the promotional period just in case your plans to pay off your balance go awry, says Bruce McClary, a certified financial educator and director of media relations for Clearpoint Credit Counseling Solutions. "The devil you know might be better than the devil you don't know," McClary says, noting that it could be better to stick with your old card if the card you're considering has a very high interest rate after the promotional period ends. The "go-to" interest rates on the cards surveyed by CreditCards.com ranged from a low of 9.99 percent for customers with the best credit with the U.S. Bank Visa Platinum Credit Card to a high of 25.99 percent for cardholders with the worst credit on the Wells Fargo Cash Back Platinum Card. You'll probably need at least a 720 or 730 FICO score to get the best rate offered for most cards, McClary says. And if you have a 680 or below? "You're definitely not going to get that rate they have in bold print on the front of the offer," he says.
Balance transfer offers: tricks and tips
How you handle your balance transfer can make all the difference between whether it's a good decision or a bad move, experts say. Here are five steps to take to make a balance transfer work for you:
Make a plan to pay it off. Crunch the numbers to figure out how much you'll have to pay each month to wipe out your balance before the introductory period ends. Then make sure that amount fits into your budget. "A lot of times people get excited about the initial offer, but don't think the process through to the end," McClary says. "Then, something comes up, they get stuck with something they can't afford, and they're back at square one again."
Avoid balance-building. While cards that offer an introductory zero percent interest rates on both balance transfers and purchases can be attractive, you should avoid the temptation to overspend. "You can end up trying to pay off a balance and racking up more debt at the same time," McClary says.
Be punctual with payments. One way to lose your zero-percent introductory rate and to get stuck with a penalty APR is to miss a payment. The highest penalty rate on cards surveyed by CreditCards.com was 30.24 percent on the Virgin America Visa Signature Card.
Think twice before closing your old card. If you transfer a balance from a card you've had for years, consider leaving your old account open to show you have a long credit history, which can help your credit score. However, if you do that, don't charge up a balance on it. "It can be tempting for people to continue spending on the card they transferred the balance from -- they think, 'Wow, I've got all this room to spend,'" McClary says. "And that can get people in serious trouble."
Don't play balance transfer roulette. Don't count on being able to hopscotch from offer to offer. Some consumers end up trying to make transfer after transfer just to try to stay ahead. This is bad for two reasons. First, balance transfer fees add up. Second, you might not always be able to get a good offer when you need one.
Instead, make a plan, stick to it and use the interest-free period to pay off your debt, experts say. Sherry says: "Balance transfer offers can be a great thing for consumers, but it takes a lot of discipline to pay it off before the interest clock starts ticking again."
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