0% Balance Transfers Are Back, But Should You Bite?

It’s the oldest credit card come-on in the book. Sign up for our new card and we’ll give you a 0% balance transfer APR or 0% interest on purchases for a year. And after the credit crisis of 2008 and over a year of jacking interest rates and slashing credit lines and benefits, the credit card market is heating up. Banks are ready to lend again, and to win new customers they’re willing to lend at zero percent.

Here are just a few examples:

• The Discover More Card is offering 0% on purchases for six months and 0% on balance transfers for 12 months for all approved applicants. (4% balance transfer fee at time of application; otherwise, 5% fee, $10 minimum.)
• The Chase Freedom Card is offering up to 0% on purchases for six months and 0% on balance transfers for up to 12 months. (5% balance transfer fee, $10 minimum.)
• The Citi Diamond Preferred Card is offering 0% on purchases and balance transfers for up to 18 months. (3% balance transfer fee, $5 minimum.)

For the financially-savvy, balance transfer offers are a way to borrow money cheaply. For others struggling with credit card debt, 0% balance transfer offers can be wolves in sheep’s clothing; they provide temporary relief from crushing interest rates but often, balance transfers ultimately prolong—or exacerbate—the problem. (In the latter case, imagine you take a 0% balance transfer offer with good intentions to pay down the debt within a year and save hundreds in interest. But transferring the balance “clears room” on another credit card, which you can end up using again, creating more debt).

To Transfer or Not to Transfer

Before you transfer a balance, ask yourself: Is this really a good deal for me?

Keep in mind that balance transfer fees have gone up. The industry standard was once 3%, now many cards charge 4% or 5% of the balance transferred. Gone are the days where you could use cash from a 0% balance transfer offer to stash in a high yield savings account at 5% APY.

An example: If you’re repaying a debt at a 15% APR or higher over six months or more, a 0% balance transfer with a 5% fee starts to make sense. (The actual break even-point depends on your actual APR and your monthly payments, of course.) If, however, you could repay the debt in less than six months, you might not actually save anything with the 0% balance transfer. You would, however, be tempted to let the debt hang around longer because you’re not paying interest…for now. You never know when you might face an emergency or lose your income and be stuck with an unpaid debt and an expiring introductory interest rate.

One final consideration is that just because cards advertise great balance transfer rates, doesn’t mean you’ll qualify. Card companies reserve the best rates and longest terms for people with A+ credit and typically don’t tell you what balance transfer terms you qualify for until you’ve already applied. In an attempt to differentiate itself by combating this, Discover’s current offer promises a full 12 months at 0% on balance transfers for all approved applications.

Looking for a balance transfer card? Browse our recommended credit cards or click here for additional balance transfer credit cards offers.

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Topics: Balance Transfers, Credit Cards, Interest Rates.

Published on May 5th, 2010.

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