Remember those credit card deals that would let you transfer your balance from one credit card to another, pay few or no fees and get zero percent interest for years? If you thought those balance transfer offers had gone the way of the dinosaur, there's good news. These offers are back.
Consumer credit experts say low interest balance transfer cards can provide significant savings for borrowers who use them to pay down their balances before the introductory rates expire.
Credit card regulation and the disappearing balance transfer deal
The credit card landscape has had a bumpy ride in the past few years, for two reasons. The first was the Great Recession and the overall tightening of consumer lending. Second, federal lawmakers enacted legislation in 2009 that curbed some common practices by credit card companies.
The law, known as the CARD Act, made a number of major changes to credit card lending and marketing practices, including how and when card companies could increase interest rates on cardholders. In reaction to the CARD Act's provisions, credit card companies pulled back on some products that used to be commonplace but became less profitable.
As a result, many of the best balance transfer credit card offers faded from existence--until now.
A battle for creditworthy cardholders
Todd Ossenfort, chief operating officer for Pioneer Credit Counseling in Rapid City, S.D., expects that card issuers will aggressively try to snare their competitors' customers with plum balance transfer credit card deals.
Over the last 18 months, Ossenfort says, credit card companies got rid of the bad debt they were carrying and now have money to lend. "It isn't necessarily that the economy is better," he says, "but those borrowers who have cards in their wallet are more creditworthy, and the competition for that borrower is heating up."
Initially, credit card companies may not earn much by offering the leading balance transfer offers on the market, says Joel Greenberg, president and CEO of Novadebt, based in Freehold, N.J. "They may not get an immediate justification in fees, but down the line they get merchant fees on the consumers' purchases and interest when the introductory rates expire and when consumers are no longer paying their accounts in full."
Discover offers two good balance transfer offers and the competitors are no doubt taking notice, Greenberg says. "If I were Bank of America or Chase, I'd say, 'Let's keep an eye on it.'" If a large number of a company's cardholders suddenly pay off their balances, competitors may realize that customers are transferring balances to another card, like one of Discover's offerings.
In that case, the competitors are likely to want to make similar offers to keep them and to attract new cardholders of their own, Greenberg says. "Other banks will follow suit so they don't lose their best customers."
Balance transfers: a useful tool for debt reduction
Ossenfort says smart borrowers should take advantage of these balance transfer credit card offers. The key, he says, is to pay attention to the fine print in the offer and use the new cards to pay down existing debt, not run up new debt.
Greenberg agrees: Balance transfer cards can be a great opportunity to pay down your debt faster. "They can be a great way to manage your debt as long as you don't get in the habit of saying, 'Now I have zero interest debt' and start buying things on the card that you don't need just because you can."