Surf's up! Balance transfers are back
February 1, 2012
By: Ellen Cannon
Surfing a credit card balance from a high-interest card to one with a lower interest rate has been a common way for those with debt to pay it off more quickly and save money (or even make money) on interest. Balance transfer deals became scarce following the financial crisis of 2008 as credit card issuers pulled back on their offers. In 2011, though, this started to change, and many new balance transfer offers are anticipated this year.
"I'm surprised they've come back so quickly," says Curtis Arnold, founder of CardRatings.com and a nationally recognized consumer advocate. "A year ago there were hardly any (balance transfer offers) -- now they're going to 18 months or longer."
Balance transfer survey
CardRatings.com looked at 15 balance transfer offers from a wide range of issuers to show you the choices you can expect if you're shopping for a new low-APR card. (Card offers do change frequently, so always check the terms and conditions for the specific card you apply for.)
Of the 15 credit cards we surveyed, 13 offer a promotional APR of 0 percent on balance transfers. The promotional periods range from 6 months (Wells Fargo) to 18 months (Citibank).
These 13 cards also offer 0 percent APR on new purchases for the same time periods, making them a good option for spreading out holiday or vacation costs with no interest. But be aware of the "go-to" interest rate that will kick in once the promotional period expires.
All cards we surveyed had no annual fee, except for the IberiaBank Visa Select ($35). Card issuers typically compensate for the lack of annual fee by raising the interest rates on no-annual-fee cards; IberiaBank cards may have an annual fee, but they are known for their lower-than-average rates.
How to get that low APR
While your promotional APR may last for a long time, in order to qualify for that APR you must transfer the balances to the new card within a specified time period, sometimes as little as 30 days. What does this mean?
Say you are transferring a $10,000 balance to the Chase Freedom Visa, which offers a 0 percent APR for 15 months on balance transfers, if the transfer is made during the first 30 days of the account opening. If you make the transfer within the first 30 days, you won't be charged interest for a year. If you decide to transfer another balance after the first 30 days, you'll pay an APR between 12.99 percent and 22.99 percent on that second balance. The original transfer will remain at 0 percent for 15 months.
Two credit cards we surveyed don't currently have 0 percent balance transfer offers, but they do offer low interest rates that make them attractive. The Pentagon Federal Promise Visa currently offers 24 months at 7.49 percent APR for balance transfers made between now and March 31.
The IberiaBank Visa Select offers a 1.99 percent APR for 12 months on balance transfers made during the first 3 months of the account opening. For BTs made after the promotional period, the APR is still low -- between 7.5 percent and 11.5 percent, same as for new purchases -- and you'll keep that low APR as long as you pay your bills on time.
Balance transfers with zero fee
Of course, these promotional interest rates sometimes come with a price. For example, if you're transferring $10,000 to a card with a 3 percent BT fee, you'll pay $300. So a 0 percent balance transfer fee can save you a lot of money. The downside is that zero fee balance transfers sometimes have shorter promotional periods. Check card offer terms to see how much you'll pay to transfer a balance from one card to another, and how long the promotional period will last.
Of the cards we surveyed, 10 offer a 0 percent fee during the promotional period. After that period, the average balance transfer fee is 3 percent. Wells Fargo had the highest balance transfer fee at 5 percent and PenFed Promise had one of the lowest at 0 percent; Pentagon Federal never charges a fee to transfer a balance to one of their cards.
BankAmericard Visa has the highest minimum BT fee at $10; nine cards have a minimum fee of $5, and the remaining cards have no minimum fee. If the card you're considering has a 0 percent fee for a teaser period, of course, you will pay no fee as long as you make your transfer within that period.
How much can you pay for a balance transfer? As much as the market will bear, apparently. None of the cards surveyed has a cap on how much you can be charged as a balance transfer fee.
You can see the full detailed results of CardRatings.com's balance transfer credit card survey here.
Don't blow your BT benefits
If you're going to do a balance transfer, you want to be sure you get the full benefit. Here are a few things to be aware of.
- Find out what the APR will be on purchases and future balance transfers after the promotional rate expires. You don't want to find yourself stuck with a 19.99 percent APR down the road if you can't pay off the card in time.
- Keep track of the length of the promotional period. Once that zero percent APR ends, you will be charged the new interest rate on your existing balance and new purchases.
- Once you've decided which credit card to transfer to and you've applied for your new card, do not close the old card immediately. Make the minimum payment on the old card until you're sure the transfer has been completed. If you're trying to save money using a balance transfer offer, the last thing you want is to have a late payment fee on the old card.
- Close the old card after you've received the billing statement showing that the card has zero balance. (But if you trust yourself not to run up the balance again, it's OK to keep it open to help boost your credit score). A closed account will stay on your credit report for up to seven years. If you do close the account, ask the issuer to report to the credit bureaus that the account was closed at the request of the consumer.
- If you can pay off the balance you transferred during the zero percent interest period, you've saved yourself a lot of money. Use this Lower Interest Calculator to see how much you can save.
About the Author
Ellen Cannon is editorial director of CardRatings.com. She has covered personal finance for nearly 20 years at Bloomberg and at Bankrate.com, where she specialized in credit cards.