The Balance Transfer Game - Does it Still Work?
It wasn’t too long ago when you could go to your mail box and have 2 or 3 offers from credit card companies offering low balance transfer options or even 0% financing for up to a year or longer if you would transfer your credit card balance to their credit card. During this time it was very easy to transfer balances from one credit card to another every year and enjoy the benefits of very low interest or no interest at all.
Today those offers are few and far between, and it is much harder to play the balance transfer game. The credit crisis of the last few years dried up the credit markets and banks that issued credit cards were much less likely to be as generous with low interest credit card offers.
Credit cards are a profit cow for most banks. Also, banks factor in a certain degree of risk in their credit card portfolio. They know a certain percentage of credit card holders will default on their payments and they will collect some fees but may eventually have to write off the amount someone owes. While we have a long way to go from the credit crisis of 2008-2009, banks are starting to open up their purse strings again and lend some money in the way of the credit cards.
You may have started receiving an occasional credit card offer in the mail again or seen an ad on the internet for some sort of attractive balance transfer option; however, they are probably not as attractive as the juicy offers of several years back.
If you are trying to still play the balance transfer game there are several things to watch for. First, if you see a low rate or 0% balance transfer option for 12 months, it is probably time to grab it. If you are holding out for more than 12 months at some teaser rate, it probably is not going to happen. Also, be sure and look out for the balance transfer fee - what will it cost you to move your balance to this credit card to take advantage of the teaser rate. If there is no balance transfer fee, that is optimal. If there is a balance transfer fee, make sure it is to your advantage to make the transfer. Usually the balance transfer fee is 3% of the amount, but hopefully there is a maximum of $25 or $50. If you are transferring several thousand dollars, it is probably worth your while.
Second, most teaser rates are now only for 6 months. Sometimes in the early months of the year (such as March or April) you will find offers for 0% for the rest of the calendar year. This still gives you 8 to 9 months of time to take advantage of this teaser rate. If the balance transfer fee is low, you might want to consider transferring a portion of the balance that you can pay off before the teaser rate expires. Let’s say you have $5000 dollars on a credit card and you are paying 10% interest. That is $500 in interest per year. If you have a card that allows you to transfer a balance at no fee plus 0% for 6 months, it may be to your advantage to transfer a portion of the $5000 you owe, such as $2000. If you can pay off $2000 in 6 months, you will save yourself $200 in interest this year.
Finally, search for options that have a low rate for the life of the transaction. Maybe you cannot get 0% but maybe you can get 4.99% for the life of amount you transfer. That is still a great rate to take advantage of. The big thing to watch here is that you do not make other purchases on this credit card that will not be at the 4.99% rate. Credit card issuers want you to take advantage of this teaser rate AND continue to use the card as normal. You are better off switching to another credit card until you pay off your balance.
It wasn’t too long ago when you could go to your mail box and have 2 or 3 offers from credit card companies offering low balance transfer options or even 0% financing for up to a year or longer if you would transfer your credit card balance to their credit card. During this time it was very easy to transfer balances from one credit card to another every year and enjoy the benefits of very low interest or no interest at all.
Today those offers are few and far between, and it is much harder to play the balance transfer game. The credit crisis of the last few years dried up the credit markets and banks that issued credit cards were much less likely to be as generous with low interest credit card offers.
Credit cards are a profit cow for most banks. Also, banks factor in a certain degree of risk in their credit card portfolio. They know a certain percentage of credit card holders will default on their payments and they will collect some fees but may eventually have to write off the amount someone owes. While we have a long way to go from the credit crisis of 2008-2009, banks are starting to open up their purse strings again and lend some money in the way of the credit cards.
You may have started receiving an occasional credit card offer in the mail again or seen an ad on the internet for some sort of attractive balance transfer option; however, they are probably not as attractive as the juicy offers of several years back.
If you are trying to still play the balance transfer game there are several things to watch for. First, if you see a low rate or 0% balance transfer option for 12 months, it is probably time to grab it. If you are holding out for more than 12 months at some teaser rate, it probably is not going to happen. Also, be sure and look out for the balance transfer fee - what will it cost you to move your balance to this credit card to take advantage of the teaser rate. If there is no balance transfer fee, that is optimal. If there is a balance transfer fee, make sure it is to your advantage to make the transfer. Usually the balance transfer fee is 3% of the amount, but hopefully there is a maximum of $25 or $50. If you are transferring several thousand dollars, it is probably worth your while.
Second, most teaser rates are now only for 6 months. Sometimes in the early months of the year (such as March or April) you will find offers for 0% for the rest of the calendar year. This still gives you 8 to 9 months of time to take advantage of this teaser rate. If the balance transfer fee is low, you might want to consider transferring a portion of the balance that you can pay off before the teaser rate expires. Let’s say you have $5000 dollars on a credit card and you are paying 10% interest. That is $500 in interest per year. If you have a card that allows you to transfer a balance at no fee plus 0% for 6 months, it may be to your advantage to transfer a portion of the $5000 you owe, such as $2000. If you can pay off $2000 in 6 months, you will save yourself $200 in interest this year.
Finally, search for options that have a low rate for the life of the transaction. Maybe you cannot get 0% but maybe you can get 4.99% for the life of amount you transfer. That is still a great rate to take advantage of. The big thing to watch here is that you do not make other purchases on this credit card that will not be at the 4.99% rate. Credit card issuers want you to take advantage of this teaser rate AND continue to use the card as normal. You are better off switching to another credit card until you pay off your balance.