The days of letting credit card cash advances pile up in high-yield savings accounts are behind us. Still, credit card balance transfer offers proliferate as credit card issuers compete for market share. Does it still make sense for you to surf a card balance from one credit card to another?
The answer, and how vigorously it's proffered, depends on who you consult. But the consensus appears to be that it does make sense, as long as you surf with care and undertake all necessary due diligence beforehand.
The experts speak
"Absolutely it makes sense," says Scott Bilker, Barnegat, N.J., founder of DebtSmart.com and author of "Talk Your Way Out of Credit Card Debt." "Whenever you can get a better rate, it's worth it," Bilker says. "You should be looking for a lower rate all the time, unless you're already at zero percent."
Gail Cunningham, vice president of public relations with the National Foundation for Credit Counseling in Washington, D.C., takes a different tack. "A lot of people think they're being financially savvy by playing the credit card balance transfer game, but like any other game, you need to know the rules to win," she says.
Nickel, editor-in-chief of FiveCentNickel.com, Foster City, Cal., says with some issuers phasing out transfer fees on at least some of their cards, "It's really a no-brainer to transfer your balance from a high rate card to a zero percent card, especially if there's a 12-month promo period. Even if you have to pay a transfer fee, it may be worth your while to get rid of that high interest rate, at least for a while."
4 common balance transfer mistakes
Best practices are a must in credit card balance transfers. Follow the rules of the game and avoid these common pitfalls:
- Overlooking a simple phone call
You can seek a better rate from your current card, if you are in good standing with your credit card issuer. Explain that you're prepared to transfer the balance to another card, and the issuer just might offer you a lower rate without the need for you to apply for a new line of credit.
Or perhaps you have two or more cards. Says Bilker, "If you don't have any transfer offers, call Card B that you don't often use, and say I'll transfer my money to you if you give me a lower rate than I'm currently getting from Card A, which is starting to gouge me."
Ignoring fees that eat up savings
Running some numbers can help ensure you're not fooled or tricked by any credit card offer, Bilker says. Here's an example. Your current balance is incurring interest at 5 percent, and you get another offer at zero percent for 6 months and a 3-percent one-time transfer fee. "You say 3 percent has got to be better than 5 percent," Bilker says.
"But you don't realize 3 percent over 6 months is really 6 percent over a year, and more expensive than your current card," he adds.
Another example: You owe $5,000 at 9.9 percent, and you're paying $100 a month. It's going to take 65 months to pay that back; 65 months times $100 a month is $6,500. But now you get a balance transfer offer to get that interest rate down to 1.99 percent. That will require you 13 fewer months, or $1,300 (13 times $100) less to pay back the balance, Bilker says.
Doesn't it take some effort to continually transfer balances? Yes, Bilker responds, but considerably less than $1,300 worth of effort.
Closing your old card
Surfers of balance transfer offers often consider a card useless once they transfer a balance from it. Understandably, if the card has caused you grief in the past, you may relish the thought of cutting it to bits and sending the pieces to the credit card issuer in a brown paper bag.
But wait, Cunningham says. The second most important aspect of your credit score is how much you owe relative to the credit line. If you close Card A, you'll have a smaller line of credit, but still owe the same, raising your credit utilization ratio and dragging down your credit score.
Spending your new line of credit
To surf balance transfers, you must have discipline. "You have a credit card, but you can't use it," Bilker says. "The problem with credit card debt is not with debt, it's with spending."
Cunningham also stresses this point. Using balance transfers wisely can save consumers significant amounts of money. "But you have to know yourself, and resist the temptation to add any charges," she says.
"To play the game correctly, you can't add charges. The objective is to pay the balance in full before the introductory rate expires," says Cunningham.
The golden rule of balance transfers? Chase that lower rate, but run the numbers, plan your payoff and stick with it.