Oh, the good ol’ days. You might remember the days of old when life was simple, credit wasn’t feared like it is today, and if you found yourself in over your head you could move your credit card balance to a card that offered a 0% introductory rate. Then, when the rate was about to expire, you moved it again. Balance transfer offers  were plentiful.
It was a great plan that could be used over and over but one thing that never disappeared during the card hopping process was the actual debt and the card companies knew that. If a person had charged up a large credit card balance, why would they suddenly change their habits after they changed cards? Sure, just like we make New year’s Resolutions to lose weight, when we’re given 12 months to pay off our credit card without any interest, we make the resolution to pay it off but the card companies knew that in 12 months, you would likely still hold a balance and they could start making money off of you.
And that money came in the form of some hefty late fees, a high interest rate that was raised even higher, and over the limit fees. They didn’t lose any money by offering you a 0% interest rate for 12 months. They had you right where they wanted you because they knew that most people would not change their spending habits.
The CARD Act
On February 22, 2010, many of the provisions of the CARD Act kicked in. Your interest rate couldn’t be hiked without giving you notice (unless you were late on multiple payments) and the amount they could charge in fees was capped. These provisions, along with other rules that took effect, choked off a large amount of income that card companies were bringing in and this forced card companies to change the rules on these 0% balance transfers.
First, prior to the CARD Act, the normal period for that 0% introductory rate was 12 months. Today, it is down to an average of 6 months effectively cutting in half the amount of interest a consumer can save. I was able to find some cards that had a 0% rate that lasted as long as 18 months but that wasn’t the norm and those cards had variable interest rates from 11% to 21% depending on your credit score meaning that you have to have great credit to make these cards worth the effort of transferring the balance.
Second, even before the CARD Act, there was often a fee to transfer balances but the fee had a cap. It might be a certain percentage of your balance up to $75. This meant that if you had a large balance, the amount of interest you weren’t paying for 12 months more than made up for the maximum of $75 you paid to transfer the balance. Today, these transfer fees often have no cap so if you have a $10,000 balance, you might pay $300 to transfer the full amount.
Because of the changes to these 0% balance transfer promotions, if your current card has less than a 15% interest rate, you probably won’t see the benefits of the six month introductory rate and although you might have plans to completely pay off your balance, you don’t know what will happen to your financial situation in the next 6 months so make sure that the terms of the card are better than your current card once those six months expire.
Finally, the obvious must be repeated. 0% balance transfers are certainly a great way to temporarily curtail interest accrual but you won’t get anywhere with your credit card debt until you change your financial habits. Many consumers have tried to work the system but remember that credit card companies are always one step ahead of you. You aren’t fooling them.