Are Free Balance Transfer Credit Cards Good for Indebted Consumers?


Got debt?

Most Americans will answer this in the affirmative, and a new survey from the National Foundation for Credit Counseling finds they will turn to family first for assistance. However, an increasing number are turning to their credit card company or lender to explore possible solutions to shed the debt, and in doing so are discovering a potential goldmine: free balance transfer credit cards.

A free balance transfer credit card is one that offers a 0% introductory interest rate on debt transferred from other credit cards and does not charge the standard 2-3% transfer fee. While it’s obvious that such offers are valuable, just how lucrative they actually are might surprise you. For example, if you have $7,000 in credit card debt that is accruing interest at a rate of 15% and you can afford to pay $200 each month, a free balance transfer would save you $953 over the course of a year.

That’s pretty impressive. But hold on, if these cards are so good, why don’t more people know about them?

Well, they’ve made a bit of a quiet comeback in recent months after years of presumed extinction. When the CARD Act of 2009 took effect, it robbed issuers of the ability to profit off these cards, which obviously do not garner any revenue from fees or interest for at least a few months. Before you get all up in arms, though, let’s be clear: The revenue streams dried up by the CARD Act were decidedly dirty ones. The law merely prohibited shady tactics like increasing interest rates and assessing penalty fees for little or no reason.

Given that these practices are still outlawed, it’s anyone’s guess why free balance transfer offers are back or exactly how long they’ll last. In fact, Discover’s free balance transfer card is no longer available online, just a couple of months after it was introduced to the general public. That means the No Balance Transfer Slate Card from Chase, which provides a 0% introductory APR for 15 months, is the only remaining offer of note.

There are, however, a couple of things to note about using a free balance transfer credit card, or any balance transfer card for that matter.

First, you shouldn’t count on another 0% balance transfer credit card offer being available when your original card’s 0% term ends. Consumers often try to hop from 0% card to 0% card until their debt is paid down, and while this can be a good strategy in strong economic times, if things get worse, one could very well get stuck with a high interest rate and a still considerable balance. In fact, this happened to many during the Great Recession and further complicated their financial difficulties. A credit card calculator will give you a sense of what debt will remain at the conclusion of your card’s 0% term concludes as well as how much it will cost in light of the card’s regular rate.

You must also remember that getting out of debt is only the first step. You need to stay out of debt as well. A very helpful technique in this regard, which you can actually utilize right away, is to get a separate credit card for everyday spending. Since you should always pay off everyday purchases in full within the month, the unusual presence of finance charges on this card’s statement will quickly alert you to the fact that you are spending beyond your means.

Odysseas Papadimitriou is the founder of Card Hub, a website that helps consumers compare credit cards.