Balance transfer cards can be an invaluable tool for those looking to avoid paying high interest rates on existing balances, but when used improperly they can be just as dangerous as the initial high rate card.
In this interview with Bill Hardekopf, CEO of LowCards, we'll take a look at balance transfer cards, the pros and cons of using them, and what you should keep an eye on when applying for and using a balance transfer card.
Q: What is a balance transfer card and what sets a balance transfer card apart from other cards?
A: A balance transfer card gives the consumer the opportunity to take his or her balance from an existing credit card account and move it to a new account. The transfer of that existing balance is called the balance transfer and there are a number of cards that afford the consumer the opportunity to transfer their balance… not all cards do, but a significant number of cards do.
Q: What in your opinion differentiates one balance transfer card from another? Are there any things to watch out for as a consumer or things that set one card apart from another?
A: The first thing to look for is what kind of introductory rate you get on the amount your transfer. Usually that’s zero percent for a certain number of months. That is probably the number one reason that you are transferring from one card to another is to be able to capitalize on that low interest rate for an extended period of time.
Next, look at the ongoing APR once the introductory period ends. As a consumer, you want to make sure that you’re able to get an attractive APR on an ongoing basis, not just for the introductory period.
The third thing to look at is the balance transfer fee. There are some exceptions but in just about every card there is a fee to transfer the balance from one card to another. It could be 3% of the total balance that you transfer, it could be 4%; those are usually the industry standards. So those are things to look for, but we always, always recommend that you read the terms and conditions of any card that you might be considering applying for just to make sure that you understand all the details of that specific card.
Q: You mentioned that balance transfer cards offer an intro rate and intro period which will obviously make it attractive to consumers who have a balance on another card that may have a higher interest rate. Are there any typical industry standards for an intro period or intro rate and what should consumers look for?
A: The introductory period fluctuates depending on how then economy is doing. During the economic downturn a few years ago, issuers cut those introductory rates from 15 to 18 months down to 3 to 6 months. Issuers felt at that time that they needed to cut their financial risk so they limited the introductory period.
Right now, the economy is a bit healthier so issuers are really giving much better introductory rates and periods than they did a few years ago. Most balance transfer cards have at least a 12-month introductory period. But it can go as long as 15 to 18 months once again. So if you are considering transferring your balance from one card to another, only consider cards with at least a 12- month introductory period at 0% on purchases and more importantly on balance transfers.
Q: What happens when the intro rate and the intro period expire? Let’s say that I already paid off half of the amount that I transferred on there, will that then be charged at the typical card APR?
A: That’s correct. On every balance transfer offer, you will see an introductory rate and then you’ll see an ongoing rate. And in your example, when someone pays off half of the balance, the other half will begin to be accessed at the ongoing APR once that introductory period ends. That can range from a low APR in the single digit range to higher APRs in the double digit range.
Q: Many credit cards these days offer some sort of point or rewards program. So if I transfer $5000 onto a card, will I get say, 5000 points for that transfer? And secondly are there any other perks to using a balance transfer card other than the low introductory rates?
A: Unfortunately, you will not get the points for your balance transfer; but you will get points on that card on any additional purchases that you make.
One other thing to look for in a balance transfer card is if you receive an introductory offer on your purchases for a period of time. Some cards may give you that 0% offer on the amount you transfer and what you purchase. It might be the same number of months that you get for the balance transfer amount; or it may be a lesser number of months; you have to look for that in the terms and conditions of the card.
But one caution--if you are transferring a balance from one card to another, that may mean you are already facing some financial struggles. Don’t get with that 0% offer on your purchases and think "I can go out and buy all sorts of new things without running up my interest penalties". That would be a very bad idea. What you really need to concentrate on when you transfer you balance from one card to another is paying off that existing balance and taking advantage on that 0% APR. Don’t get sucked into buying more things just because the issuer is offering you 0% on purchases too. Remember, that 0% will expire sooner than you think and you don't want to be stuck looking for another 0% introductory offer once the initial offer expires.
Q: That’s a great tip, Bill.That leads me into my next question actually which is in regards to a person’s financial situation or financial background and credit profile. There are a lot of people that have credit scores ranging from 400 to 600 to 800 and everything in between. Are there balance transfer cards that are designed for people with varying different types of credit quality or are they targeted specifically at certain category of credit scores?
A: Typically, issuers are going to offer a balance transfer card to people with good to excellent credit profiles. People with fair or poor credit are going to have a very tough time getting approved to transfer the balance from one card to another.
Issuers are always assessing their financial risks and people with fair or poor credit are much riskier than those with good credit scores. So issuers typically do not want to take on riskier accounts and inherit another issuer's problem account. But they will be happy to approve people that have good or excellent credit scores because these people have a much lower risk assessment.
Q: That makes sense and just to follow up with that, a lot of people who may be carrying a high APR balance on another card are typically people, in my opinion, that may have whole weaker credit profile. Do they stand a chance of being approved for a balance transfer card?
A: That will depend on the issuer. However, if we had to generalize, they probably won’t approve people that are too much of a risk. They may approve you when you try and transfer a balance of a certain amount, however that doesn’t mean that the issuer has to take that entire balance and allow you transfer that entire amount. They may only take on a certain portion of your existing balance so it’s critical to make sure you determine exactly what the issuer is allowing you to transfer. It might be a much lower amount than you were hoping for, but the only way to find out is to apply.
Q: With that said, are there any typical amounts that an issuer allows you to transfer, is there a range or is it just dependent on your personal credit information?
A: That also will really depend on your credit score and what your balance is and how they assess the risk of that individual.
Q:Where can consumers go to find a comparative balance transfer card? I know there are a lot of issuers offering information on their websites, but what if they want to cross compare different issuers? Is there a good resource you recommend using?
A: LowCards.com offers a page that is specifically for balance transfer cards. We have taken every balance transfer offer and ranked the top ones on that particular page.
What we always recommend is that you look at the introductory offer as well as the terms and conditions or every card you’re thinking of applying for. And when you’re thinking of choosing between 3 or 4 different cards, you should take a pencil, calculator and a piece of paper and do a mathematical calculation as to whether transferring the balance from one card to another is a good financial move for you. Look at how much interest you are currently paying on your existing card and compare it to how much money you will save for that 0% introductory time period. But you have to deduct the amount of the balance transfer fee from what you are saving.
Q: As we wrap things up, I know we talked about a lot of different aspects of balance transfer cards, are there any other major pros or cons that we haven’t really touched on? Is there anything else that a consumer should know when looking at balance transfer cards?
A: A lot of times, you need to make sure you are reading the terms and conditions for each specific card. Look to see if the grace period for a balance transfer card begins; it could begin immediately, it could begin at the end of the month, it could begin at the end of the billing cycle.
Another thing to look at is that if you pay late on a balance transfer card, you may forsake your introductory period. So it’s very important that you pay on time as it is with any payment but particularly on a balance transfer card with an introductory period. Pay your bill on time each and every month!
Q: Are there any cards that you would highly recommend as a balance transfer card?
A: This always changes so the best thing is to look at our top cards on the balance transfer page of LowCards.com, however there is a card from Chase called the Slate card. It has a 0% balance transfer and it has no balance transfer fee which makes the card very unusual. It also has an attractive introductory period, 0% for fifteen months. Most cards carry a 3-4% balance transfer fee, but this one doesn't, so that’s a card to definitely consider when you’re analyzing what card would be best for you.
Q: With the Chase Slate card being unique are there any other cons or fees or drawbacks associated with that card, or is it just a really great offer right now?
A: It’s a terrific offer right now. We never know how long these types of offers may last though. As with all the cards, read the terms and conditions to make sure you understand exactly what you’re getting with the card. As I mentioned earlier, the best place to stay up to date on the best offers is on our balance transfer page where our editors rank each card based on how it stacks up to other cards in that category.