0% Balance Transfers Are Tempting, But Beware the Risks

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Credit card companies are dishing out sign-up deals the likes of which customers haven’t seen since before the recession — but look before you leap, because these enticing offers come with some real risks. 

In the depths of the recession, banks pared back their credit card portfolios faster than you could say “past due balance,” dumping unprofitable customers and relegating themselves to borrowers with only the most pristine credit. Americans, still feeling the sting of losses in their home values and retirement accounts, stopped using buy-now-pay-later as a strategy for managing their finances, and decreased their credit card debt.

Now that the worst of the recession is over, banks are feeling ready to lend again. So issuers ramped up their marketing efforts, dangling offers — sign-up bonuses, teaser rates, generous rewards — that analysts predicted had vanished for good when the bubble burst.

Now, their weapon of choice in the fight for market share is the 0% balance transfer offer. The Wall Street Journal reports that banks are “flooding mailboxes” with 0% balance transfer offers, some with promotional periods that stretch to nearly two years. It’s an attempt “to reel in new customers with the lure of not paying interest on current balances, and then get them to rack up interest-bearing charges on new purchases,” the newspaper says.

The tactic appears to be working. Credit bureau TransUnion says average credit card debt per borrower rose to $4,965 last quarter from $4,875 in the first quarter of the year. The Federal Reserve Bank of New York says credit card balances increased $8 billion to $668 billion in the second quarter.

This alarms consumer advocates, who say customers don’t see the risks hiding behind that 0%.

You’re hit with a fee right off the bat. Most 0% balance transfer cards charge a fee — usually 3% of the transferred balance — that’s added on top of your existing debt. “The average balance transfer fee — 2.88% of the amount transferred — is 2.86% higher than last quarter,” industry site CardHub.com says.

You could wind up with a dual debt. Sometimes, closing the old card is impossible because the new credit line might not be enough to transfer over the entire balance. In this case, “You still have the old card to worry about,” says Linda Sherry, director of national priorities for advocacy group Consumer Action. It’s both a logistical hassle (two payments each month instead of one) along with an ever-present temptation to hit the credit on that old card again.

New purchases can trip you up. “Don’t make new charges on the card until the balance is paid off, even if you have 0% on new purchases as well, because this will just add time to the process and threaten to derail the primary purpose of getting rid of the balance,” Sherry advises.

The teaser could expire before the debt is paid. “Roll up your sleeves and pay the balance down within the teaser period,” Sherry says. “We suggest people look for the longest possible intro period and pay as much as possible each month.” Once that 0% promotional period is expired, you’ll be stuck paying the card’s current APR.
You pay for that teaser with a higher APR. This is especially true for people with the best credit, according to data from CardHub.com. For people who habitually run a balance, the 0% offer lures them in, but can backfire when the promotional period is over and they wind up paying more in interest than they would have otherwise.
Issuers are lowering their standards. Banks are once again courting riskier customers, increasing the likelihood that more will wind up over their heads, especially if they don’t close the old card after the balance has been transferred.
1 comments
mbcls
mbcls

hey STUPID!

let say your current card APR is 14.99%.    would you rather paying that 14.99% APR "right now".  or  pay that 19% APR not due until 12 months later with 0% balance transfer.    you be paying interests 12 months later, how much interests are you saving by paying 1 year later?

"new purchase will add on top it"

all credit cards do that!  doesnt matter your current credit card is 14.99$ APR  or  that card with 0% intro APR!