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.”

Two key economic indicators are increasing which might point to financial problems for US households. This week the Federal Reserve indicated that they may raise interest rates again in June. The Federal Reserve also released statistics showing that consumer borrowing on credit cards and revolving debt jumped at an annual rate of 4.5%, the fastest pace in 10 months.

“In April, consumers added $3 billion in credit card debt and interest rates also hit a five-year high. The standard credit card rate is now over 14%, and that rate will probably be higher in July,” says Bill Hardekopf, CEO of LowCards.com. “In March, we were actually encouraged by a drop in borrowing on credit cards. Unfortunately, this large increase may be a sign that households are struggling financially. Even though they know rates are increasing, they still have to use credit cards.”

Reducing or eliminating credit card debt should be a priority for families who want to move beyond financial survival. The first step should be contacting the credit card companies and requesting a lower rate, especially if you have a good payment history but your rate is much higher than 13%. This is a simple suggestion, but it works. Even if the rate is lowered only 2%, that is extra money that money can be used to pay down the balance. If they turn down the first request, be persistent and call again in a month or three months.

If you carry a balance, don’t use your credit card to pay for gas. “Gas is expensive enough without paying and additional 14% in interest. If you pay $150 for gas each month, the interest payment adds $20 per month. The gas you bought is gone before you ever get the credit card bill,” says Hardekopf. “If you carry a balance, the same rule applies to food and entertainment.”

Another option is transferring your balance to a lower rate card. “If you expect to receive a tax refund or a bonus in the next year, transfer your balance to a card with 0% APR on balance transfers for 12 months. Extra money from tax refunds, gifts and bonuses can help significantly pay down the balance,” says Hardekopf.