Of course, after 2008, many of those lucrative offers dried up, leaving habitual credit card jugglers in the lurch.
Now, like they say in the scary movies…..they’re baack!
As reported in the Wall Street Journal, credit card companies are ginning up business by mailing out offers allowing “new customers to transfer their existing credit-card balances from other institutions without paying interest for as long as two years.”
If you carry a credit card balance and have used balance transfers in the past to reduce interest costs, here’s what you need to know:
- Banks have started offering these deals again to attract new customers and build profitable new banking relationships. Consumer credit use is down from previous years, which reduces bank earnings. “The goal of the 0% teasers is 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,” says the Wall Street Journal. Of course, this strategy may backfire, since savvy balance-jugglers may not put new purchases on the card, and may transfer balances out again when the 0% interest period is up.
- Some banks and credit unions are reportedly offering 0% balance transfers without any one-time transfer fee. But many deals do involve a one-time cost, typically 3% of the balance transferred.
- Some deals being offered are good for a relatively long period of time, such as 18 to 21 months or longer.
- Credit standards have loosened up since the 2008 downturn, when many consumers found their credit lines suddenly curtailed or revoked. But as the joke goes, banks still like to lend money to the people who don’t need it and withhold it from those who do. “Those with spotty credit histories … still aren’t eligible for the promotions,” claims the Wall Street Journal.
- Is a balance transfer right for you? It could be “as long as any fee associated with moving the account would be less than the amount of interest currently being paid on the balance,” writes the WSJ. Just be aware that you could be paying higher interest rates on any outstanding balances when the free offer period expires.
The Takeaway: Since I’m a Certified Financial Planner practitioner, you already know what I’m going to say about carrying credit card balances, right? (E.g. “Don’t”). In general, if you can’t pay it off, don’t charge it. That said, we do know that clients sometimes find themselves in dire circumstances where they are just trying to keep their heads above water, or are facing unexpected expenses, and ending up carrying balances. (We don’t like it, but we do understand). Sometimes a balance transfer can buy them time. But make sure you use that time wisely to reduce expenditures, redirect funds to paying down balances each month, and reorganize your finances, so you can get out of the hole and stay out.
For further reading:
Or, for money-saving practical hints on credit card balance transfers, check out Catey Hill, “0% credit-card offers aren’t zero cost: How to do the math on the deals flooding your mailbox,” MarketWatch.