0% Balance Transfer Card Guide: 2008 Edition

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0% Balance Transfer Offer EnvelopeThe reports of the death of 0% APY balance transfers are greatly exaggerated.

Many years ago, no fee 0% balance transfers were a dime a dozen. It would be difficult to find a credit card that didn’t offer a no fee 0% balance transfer as the cheap and easy credit flowed like wine at a Great Dionysia Festival. You couldn’t open your mailbox because it was stuffed full with special promotional offers from all your good friends at the major credit card companies.

The fee-free frenzy gave way to new terms like app-o-rama and balance transfer arbitrage. People would go on credit card application binges so that they could get as many cards as possible (an App-o-rama) just to take advantage of the balance transfer offer. It was not unheard of for someone to get $30,000 (and that’s just a conservative figure) in balance transfers just to put it in a high yield savings account earning 4-5% APY (that’s the arbitrage).

Now, balance transfers with 0% APY promotional rates are still available but the fees have been re-introduced and the promotional periods are quickly slipping from 12 months to a mere six. The offer now is less attractive to those looking to arbitrage (bank interest rates are now in the 3-4% range, rather than the 5-6%, cutting the interest earned side of the equation as well) but they are still attractive to those paying double digit interest rates on their existing credit debts.

Good for Debt Recovery

Credit Repair SignageI think the credit card companies re-instituted fees because they found an inordinate number of consumers using these offers to arbitrage rather than pay off existing debt. While they can never be sure how someone is using the transfer, I imagine their accounting departments are telling them that the percentage of people paying off the loan after the promotional period is higher than their projects… so something is amiss.

However, their only reaction is to stop their policy of waiving balance transfer fees. Citi has been the most aggressive in this group as many of their cards have a 3% fee and no limit on the transfer fee. Other companies like Discover and Chase will also have a 3% fee but cap the fee at a double digit amount such as $75 and $99, respectively. The cap is enough to dissuade all but the most hardcore balance transfer arbitragers but it makes the cards good candidates for people looking to actually transfer debt.

Watch Out For…

American Express, Visa & MasterCardWhenever you take on debt, there are always things you need to be aware of. After years of blogging, watching these offers, participating in arbitrage myself, and reading trade publications like Cards and Payments, I learned that you can get in trouble if you’re not careful.

It will affect your credit history and score. Every time you apply for a card, it’s recorded on your credit history and your score may be negatively affected. Every time you are approved for a card, it’s recorded and your score can be negatively affected. One thing to be very cognizant of is the long term effects of balance transfers (and any credit activity). It doesn’t make much sense to take on new credit card if you’re a couple months away from buying a home. The savings you’d get on the transfer will look like a drop of water in an Olympic-sized pool when compared to your mortgage loan.

Balance Transfer, not Cash Advance: It is very important that you request a balance transfer rather than a cash advance or otherwise ask for a “check.” The confusion comes from when you request it. I’ve known someone to request a “check for their credit limit,” which the CSR conveniently understood to mean that he wanted a cash advance rather than a balance transfer, which is what he actually wanted. Balance transfers often come by way of check, I know Citi does this, so you can see why there was confusion. Unfortunately, cash advances aren’t billed the same as balance transfers. Often times the cash advance doesn’t have the 0% APR promotional rate and the fee structure might be different. One one card I saw, there was a cap of $75 on the fee for a balance transfer but no maximum for cash advances. Be very specific when you make your request to say balance transfer.

Balance transfer fees: The best deals in balance transfers are those that have no fee whatsoever. Those types of no fee 0% balance transfer offers were abundant a year or two ago but are nearly impossible to find now. The next best thing is to find a card that will charge a percentage based fee but cap the maximum they will charge. Many Discover cards have a 3% fee with a $75 cap. If you transfer a balance greater than $2,500, the percentage will be lower than 3% because of that cap. If you transfer $5,000, the fee is now only 1.5% of the balance.

Post-0% APY interest rates: If you’re using balance transfers to combat debt, be very aware of the post-promotion interest rate you’ll be charged. You can often read this off the “important fee, APY and promotion” terms & conditions sheets for each card. What you’ll want to look in the rates section and they will often explain where the rate will go. Many cards will have the balance transfer interest rate increase to the standard APR for purchases, which is often pegged to the WSJ Prime Rate + some percentage.

Default Rules: Defaulting generally refers to when you fail to make a required payment on your credit card. If you “default,” then the credit card company often increases the interest rate on your debt to the Default Rate (also listed on those rate & fee T&Cs), which can be extremely bad. There are also several other events that can trigger a default other than non-payment. In the case of Discover, some cards have a clause that warn a default could be triggered if you exceed your account credit limit twice. The default rate on most cards is a staggering 23.99% – 28.99%, so knowing the rules is absolutely crucial.

A few years ago, some companies began enforcing a concept known as Universal Default, where defaulting on any other loan or payment resulted in defaulting on that card, though that’s slowly been abolished. Check your T&Cs to ensure the card doesn’t have that policy.

Always Be Diligent

The number one rule of working with credit cards is that they require diligence and lots of reading. Every card has its own set of rules, terms and conditions; be sure to review them and make sure you understand everything you’re agreeing to. You can take a few days to review an offer before applying, it’s much easier to change your mind before you’ve sent off your information.

I hope you found this guide informative!

All photos taken by thetruthabout.

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2 Responses to “0% Balance Transfer Card Guide: 2008 Edition”

  1. prophet says:

    be careful with the new set of offers coming in the mail.
    This week i got a providian , which has 0Pct for a year but only 4 months for purchases. I have seen a few offers like this , so you will have those purchases paid off after your 0% is paid off, because most cards pay lowest to highest interest rates off first.

  2. T says:

    Also be careful to watch your due dates.

    I have a Discover card 0% which I’m using to pay down debt. I’ve gone paperless and had setup automatic payments that would pay just a few day before the due date.

    I made the mistake of not checking my monthly bill, and Discover changed my due date and all of a sudden I was late one month and had an interest rate of 28%. Luckily I emailed them and explained what happend they returned the 0% and refunded the interest charge but left the late fee, which is fine, since I guess it was my fault for not being more careful.

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