Ever wish your credit card company would one day opt against charging interest and, you know, just let your balances slide for a while? Perhaps, but soon after you probably came to terms with the fact that a bank sacrificing precious interest revenue is just a borderline-laughable pipedream for U.S. consumers burdened by an additional $48 billion in credit card debt after 2011, according to a Card Hub study. But is it truly a fantasy? Apparently not, considering the recent return of a credit card genre once believed dead and gone: no balance transfer fee credit cards.
Not only do such cards abstain from charging consumers for the pleasure of transferring their debt from other credit cards, but they also provide 0% introductory interest rates, thereby allowing indebted folks to pay down amounts owed over the course of a year-plus without incurring any additional costs. This, of course, equates to sizeable savings.
For example, if you currently owe $5,000 in credit card debt, have an 15% APR, and can afford to pay $300 toward this debt each month, lowering your interest rate to 0% would save you $545 over the course of a year.
That’s obviously an attractive deal, but I’m sure it also raises some questions in your mind, namely: 1) Why were no balance transfer fee credit cards presumed extinct; 2) Why are they back; and 3) Is having more than 12 months to pay down credit card debt free of charge too good to be true?
Why’d they disappear?
No balance transfer fee credit cards disappeared in large part due to the passage of the 2009 personal finance reform law, the CARD Act, but before you start cursing legislation, it’s important to note that these cards were merely collateral damage.
You see, credit card companies were only able to make money off of these cards by using gotcha-type of practices to change consumers’ interest rates, and when the CARD Act made such tactics illegal, it also ushered free balance transfer credit cards out the door.
Why’re they back?
The CARD Act is still in place, so it’s fair to wonder why these cards have made an encore. To be honest, it’s curious because there’s still no reason to believe they could ever be profitable in the current environment. Sure, there are a few plausible explanations – including the notion that issuers are using these attractive offers to either lure and then cross-sell new customers or boost their public image – but the most probable hypothesis has got to be that they wish to give the outward appearance of company growth.
Outstanding balances are a metric commonly used to track the relative size of credit card issuers’ operations. They also affect delinquency and charge-off rates, which investors use to determine underwriting sophistication. Therefore, the decision to offer no balance transfer fee credit cards could very well be motivated by a desire to feign the appearance of growth and either attract new investors or appease current ones.
Is it too good to be true?
No, but like all good things, balance transfer fee-less credit cards might not be around for long. Only two issuers, Chase and Discover, have offered them in recent months, and Discover already discontinued its No Balance Transfer Fee More Card to all but direct mail customers. The No Balance Transfer Slate Card from Chase is therefore the sole remaining online offer that gives you 0% for more than a year – it provides 0% on transfers (as well as purchases) for 15 months – without charging the common 3% transfer fee.
So, if you have revolving credit card debt, take advantage of the significant savings provided by free balance transfer cards because no one knows how long they’ll be around.
Odysseas Papadimitriou is CEO of Card Hub, a website where consumers can compare credit cards.