Take Advantage of Balance Transfer Offers Now-- Changes May be Coming
Take Advantage of Balance Transfer Offers Now--Changes May be
Coming
This week American Express announced that it has immediately discontinued all balance transfer offers for new customers in the UK. This is a result of consumers (called "rate tarts" in the UK) using the 0% interest rate and swapping their balance to another issuer with a 0% balance before the rate expires. If used correctly, this is a good strategy for cardholders, but it has been costly for issuers like American Express.
"Even though this happened in the UK, it may indicate there is an overall problem with generous balance transfer offers. If there is no real benefit, credit card issuers may find there is no reason to continue this offer," says Bill Hardekopf, CEO of LowCards.com. "0% balance transfer offers are also popular in the United States and they are used the same way here. Credit card companies are currently in a situation where they have to find the right balance of generating revenue and not giving too much to cardholders who pay off their balances each month and thus avoid any interest payments to the issuer. These customers add very little revenue to companies like American Express.
"The credit card industry is very competitive right now and they are competing on benefits like rewards and balance transfers. Since many of the cardholders who take
advantage of these offers pay off their balance each month, issuers may be wondering how much longer they can continue offering generous rewards that provide small returns," says Hardekopf. "However, this is a good time for consumers with high interest rates to shop around and try to take advantage of the cards that offer 0% for 12 months on balance transfers. This is almost a free pass to start getting rid of your credit card debt."
It's important for consumers transferring a balance to refrain from using that card until the existing debt is paid off. "In a number of cases, the 0% balance transfer
cards have a higher interest rate on new purchases," says Hardekopf. "So it's wise for consumers to not use that card until the balance is completely paid off."
Coming
This week American Express announced that it has immediately discontinued all balance transfer offers for new customers in the UK. This is a result of consumers (called "rate tarts" in the UK) using the 0% interest rate and swapping their balance to another issuer with a 0% balance before the rate expires. If used correctly, this is a good strategy for cardholders, but it has been costly for issuers like American Express.
"Even though this happened in the UK, it may indicate there is an overall problem with generous balance transfer offers. If there is no real benefit, credit card issuers may find there is no reason to continue this offer," says Bill Hardekopf, CEO of LowCards.com. "0% balance transfer offers are also popular in the United States and they are used the same way here. Credit card companies are currently in a situation where they have to find the right balance of generating revenue and not giving too much to cardholders who pay off their balances each month and thus avoid any interest payments to the issuer. These customers add very little revenue to companies like American Express.
"The credit card industry is very competitive right now and they are competing on benefits like rewards and balance transfers. Since many of the cardholders who take
advantage of these offers pay off their balance each month, issuers may be wondering how much longer they can continue offering generous rewards that provide small returns," says Hardekopf. "However, this is a good time for consumers with high interest rates to shop around and try to take advantage of the cards that offer 0% for 12 months on balance transfers. This is almost a free pass to start getting rid of your credit card debt."
It's important for consumers transferring a balance to refrain from using that card until the existing debt is paid off. "In a number of cases, the 0% balance transfer
cards have a higher interest rate on new purchases," says Hardekopf. "So it's wise for consumers to not use that card until the balance is completely paid off."
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