Tips for Transferring Credit Card Balances to a Lower Rate

Consumers are quickly losing low-rate options for refinancing
loans like credit card debt. The credit crisis has almost
eliminated home equity loans with cheaper interest rates, and
recent philosophical changes in the credit card industry have
reduced the offers for transferring debt to cards with lower
rates.

Until recently, balance transfers were a part of aggressive
competition by credit card companies to attract consumers
with credit card balances from other issuers. However, Chase
recently announced that it is lowering its emphasis on balance
transfers and teaser rates.

“0% for 12 months offers may become a passing fad as credit
card issuers focus on more effective ways to increase
cardholder usage with the cardholders they have.” says Bill
Hardekopf, CEO of LowCards.com. “If you have considered
transferring your balance to a card with a 0% intro rate for
12 months, now is the time to act because these offers
are shrinking or becoming harder to get. Consumers should
compare offers from several different credit cards to secure
the best deal.”

Transferring your credit card balance from a high rate credit
card to a lower rate card can lead to significant savings.
For example, paying the minimum required ( which averages
2.5% of the balance ) on a $5,000 balance with a 14% APR will
take 20 years to pay off and will cost $4,167 in interest.
Transferring that same balance to a card like the Blue from
American Express with a 4.99% fixed rate for the life of
that balance will make a huge difference. Assuming you pay
the minimum payment, it will take 13.67 years to pay off and
cost $958 in interest. That is a difference of 6 years of
payments and $3209 from the higher rate credit card. The best
advice is to pay more than the minimum payment and get the debt
taken care of as soon as possible, but for consumers who can
not do that then the balance transfer provides a great option.

Here are seven tips for transferring a credit card balance:

1. Know how much you can pay towards your balance each month
and how long it will take to pay it off; then find the card
that fits your time frame for paying off your balance. The
0% intro rate for most cards is 6-12 months. These are a
good choice if you can pay off your balance during this
period with the lowest rate. However, be aware that the rate
after this introductory period may be higher than average.
If it will take over a year to pay off your balance, look
for a card that may offer a slightly higher rate for balance
transfers, but the rate is fixed for the life your balance.
For example, Blue from American Express offers 4.99% fixed
rate for the life of the balance transfer submitted with
the application.

2. The low rate is only for the amount you transferred.
Unless the offer includes purchases, any purchase made
with the new card will be at the much higher rate. In
an unfair but clever trick by issuers, your monthly
payments will be used first to pay off the balance that
you transferred with the lowest rate. New purchases with
the higher rate will accrue finance charges until the
low-interest balances are paid off.

“Knowing how your payment is processed is a good way to
control your credit card use. If it takes 12 months to
pay off the transferred balance, then you are going to pay
a much higher interest rate on any new purchases made with
the card,” says Hardekopf. “If you think you are going to
also make purchases with the card, look for one that
also offers 0% on purchases for 12 months. You don’t want
to be caught by this and pay 14% interest on a $40 meal or
a tank of gas.”

3. If you have a low credit score, you may not get the
advertised intro rate. Read the terms and conditions before
applying for the card. For example, Chase Platinum Visa
reduces the intro rate period from 12 to 3 months for those
who fall into its standard rate tier. If the offer you
receive will not help your situation, cancel your application;
do not keep the card. Improve your credit score, and try
again in a year. If you have a good payment history with your
current card, contact them to ask for a lower rate.

4. Know the fees before you transfer your balance. Fees are now at
least 3% of the amount of the balance transferred and some cards
do not put a cap on these fees. “Always factor in the fee when
comparing intro rates, because a high fee can taint the offer.
For example, if you transfer a balance of $5,000 from a card
with 18% to lower rate of 14%, you will save $200 the first year,
but the fee for the balance transfer fee could cost you $150,”
says Hardekopf. “The fees are charged per balance transfer; if
you transfer balances from two cards, you will pay two fees. Also,
avoid cards with an annual fee. There are plenty of good offers
that don’t charge an annual fee.”

5. The amount that you can transfer to a new card will be
determined by your approved credit limit. If your request
exceeds the available credit line or the amount approved,
the transfer request will be honored up to the amount
approved and you will be notified. If the new issuer does
not accept the whole balance, you will be stuck with the
remainder on your old card.

“Remember that balance transfer fees will be added to your
balance; if you are at your credit limit, these could send
you over your limit and add over-the-limit fees. It is a
good idea to keep your balance at less than half of your
credit limit,” says Hardekopf.

6. Pay on time because the intro offers are good only while you are
making your payments on time. If you miss one payment, your
rate will jump to the full rate. If you miss two payments, it may
jump to the default rate of 25-32%. To help yourself, set up
automatic bill payment. Most cards also provide payment alerts
to remind you when your payment is due.

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September has been a busy month press-wise around LowCards.com and we wanted to share with our readers some of the places we have been featured :

CNN Money : The Fed and Credit Cards

US NEWS & WORLD REPORTS : Asking for a Lower Credit Card Rate

MSNBC: Why are credit card rates out of control ?

CBS NEWS: Credit Cards Could Trap College Kids

Business Week: Credit Cards 101: Finding the Right Plastic

Yesterday, the Federal Reserve cut interest rates to help ease credit anxiety for borrowers. This cut was big news because it was the first since 2003, and twice as big as some analysts had predicted. Unfortunately, this will not lead to a substantial savings for consumers with credit card debt.

In order to actually receive a meaningful decrease in their interest rates, credit card consumers will have to ask for it themselves.

Since many credit cards now have variable rates that are tied to the prime rate, cardholders should expect a slightly lower interest rate and monthly payment. “This was intended as a break for consumers, but in reality this cut will only save about $2 per month on a $5,000 credit card balance,” says Bill Hardekopf, CEO of LowCards.com. “It will be interesting to see how quickly issuers drop rates. They are
quick to raise rates with an increase, but it may take as long as one to three months for consumers to see the lower rate on their billing statement.

“Even though the rate cut sounds good and may make consumers feel good, the half-point cut will not make a real difference in saving money on interest payments. The best way to get a lower rate is to talk with your credit card company. If you carry a balance, they will often lower the rate because they want to keep your debt and
interest payments,” says Hardekopf.

When should you ask for a lower rate?

* If you have a good payment history and your APR is over 12%. The average APR is around 14.9%.

* If you received a high rate for your first credit card, have paid on-time, and stayed under your credit limit for 6-12 months.

* If your card started out with a low rate, but your issuer has increased it several times.

* If you have had the same card for several years and your balance is under 30% of your credit limit.

Requesting a lower rate is pretty simple, even if you don’t like negotiating and this seems out of your comfort zone. Call the number on the back of your credit card or bill. Tell them you have been a good customer but you would like a lower rate. Mention that you have received several offers with lower rates in the mail and have researched cards with lower rates online. You want a lower rate on your card or
you will switch to another card with a lower rate. Ask what can they do to help you.

If the first person tells you that they can’t lower it, call back in a month. This is one area where persistence may pay off. If they tell you they can’t lower your rate, remind them that there are other cards available.

If your interest rate is lowered by 4 points (from 18 to 14%), in the first year you will save $200 on a $5,000 balance. Apply this savings to pay down your balance.

LowCards.com ( http://www.lowcards.com ) is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards/rebates, and lowest intro rates. It also gives an unbiased ranking and review for each card, making it easy for consumers to compare more than 150 credit card offers and apply securely online. LowCards provides advice about credit
card and debt issues, news, and credit card updates. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for over seven years.

The recent mortgage crisis seems to have diverted attention away from credit card reform, and credit cards issuers continue to make subtle changes to increase their revenue through fees. These increases show a bold industry going after every cardholder dollar it can, despite the recent Congressional investigation of credit card practices.

Discover has just announced that it is increasing its cash advance rate from 20.99% to 22.99%.

“As we saw with the recent expansion of the balance transfer fees, adding or increasing a fee is like catching a cold. It starts with one issuer and spreads quickly to the others,” says Bill Hardekopf, CEO of LowCards.com. “I expect the increases to continue.

“Members of Congress gave speeches about protecting consumers from credit card fees, and the issuers said they would make changes, but meanwhile the companies continue to find ways to increase fees or adjust their terms to get another dollar from their cardholders,” says Hardekopf. “What will Congress do now? Credit card reform and
protecting U.S. consumers from unfair credit card practices was a big priority in May. I hope that this issue hasn’t already fallen off their radar.

“Cash advances have become almost a legal robbery of consumers. Chase now charges over 28% for cash advances. On top of the high rate, issuers charge a 3% transaction fee with no limit. The average cash advance amount for a MasterCard is $1,560, so in the first year, you could pay almost $500 for a $1,560 cash advance loan.

“Default rates are still climbing to even more punitive levels. Just six months ago, we were alarmed because some issuers were charging 30% for the default rate; now Chase is charging over 32%. Not long ago, the maximum for a balance transfer was generally $75 for everyone. Now many cards have dropped the maximum cap.”

Discover is also increasing its late fee at the end of the month. It is currently charging $15 on balances up to $500, and $39 on balances over $500. For billing periods ending after October 1, it will charge $19 on balances up to $250 and $39 on balances over $250.

Others are squeezing more out of the late fee by adding a third tier. For example, Chase now charges $15 on balances up to $100; $29 on balances between $100 and $249; and $39 on balances over $250.

“These are more examples of knowing your credit card terms and conditions. If you are shopping for a credit card and will carry a balance, don’t just compare the advertised rates. Write down all of the fees in the terms and conditions, then compare the cards,” says Hardekopf.

Credit Cards 101: Finding the Right Plastic