High interest rates. Unexpected rate hikes. Late fees. In many ways, American consumers feel at the mercy of — and taken advantage of by — credit card companies. Just once, it would be nice to get some payback, and take advantage of the credit card companies themselves for a change.
Well, now you can.
For the past five years, the good folks at Bankrate.com (RATE) subsidiaryCreditCards.com have been tracking the comings and goings of credit card issuer offers, and clueing consumers in to which offers are worth biting on. Turns out, this year is looking like an above-average one for credit card perks.
According to CreditCards.com, out of 100 popular credit card offerings, 38 now offer consumers the option of transferring balances from another card at lower-than-their-normal interest rates for at least 12 months. Of these cards, 17 offer 15 months at such promotional rates. (A year ago, the equivalent numbers were just 33 and 10.) One card in particular, the Citi Diamond Preferred from Citibank (C), offers 18 months of 0 percent interest on balance transfers — and also on new purchases.
Meanwhile, 40 of the 100 credit cards surveyed will charge you 0 percent interest on your balance transfers (not all for 12 to 15 months, however).
Hey, Look! Free Money!
What does this mean to you? Potentially, hundreds of dollars in savings on your credit card bill. CreditCards.com lays out the math: “Take, for example, a consumer who has an existing $5,000 balance. Let’s say that consumer transfers the balance to a new card with the most-common offer found in our survey: a card with a 12-month, 0-percent introductory rate and a 3 percent fee. If the consumer pays it off in a year, payments will total $5,150, including the fee. Compare that to the consumer who starts with the same debt, but pays if off using … a typical 15 percent APR credit card. That consumer would pay $5,415 — $265 more.”
And that’s assuming that the consumer is a disciplined cardholder who really does pay off the entire $5,000 balance in a year. Should paying off that balance on a typical credit card take two years instead of one, the cost of payback risesfrom $5,415 to $5,818. Three years: $6,240. Four years: $6,679. Plus, the longer you take to pay back the debt, the more chances you get to miss a payment and add late fees to the principal…
This Is a Limited-Time Offer — Act Now
Long story short, the sooner you take advantage of today’s lenient credit balance transfer terms (made possible, and made lenient, by continuing low interest rates courtesy of the U.S. Federal Reserve), the better. This is especially true because Fed watchers think interest rates will begin to rise this year — perhaps as early as June. Once that happens, you can expect two things:
- First, credit card interest rates will rise (raising the cost of carrying a balance).
- Second, the generous offers of 12, 15 or even 18 months of 0 percent financing on balance transfers will go away.
And speaking of “going away,” it’s worth highlighting that what used to be the primary problem with taking advantage of balance transfer offers is no longer a concern. We’re referring to the historical practice of credit card companies offering “0 percent interest” on balance transfers, combining that with (for example) 15 percent interest on new purchases — and then applying all payments to the 0 percent balance first.
So Long to Payment Allocation Trickery
CreditCards.com used to refer to this practice as “payment allocation trickery,” and it worked like this:
- First, you transfer $5,000 (for example) to a new card at 0 percent.
- Then you rack up, say, $1,000 in new charges on that card (at 15 percent interest).
- Not wanting to pay interest, you then send your credit card company a check for $1,000.
- The credit card company, though, would apply your entire $1,000 to the 0 percent balance (dropping it to $4,000).
The card company would, however, continue to charge you at 15 percent on the $1,000 in new charges. And you wouldn’t get a chance to pay a dime’s worth of that interest-charging balance until the balance transferred at 0 percent had been paid off in full.
This practice, however, was made illegal when Congress passed the CARD Act in 2009. As of today, card companies can still apply the minimum monthly payment portion of your bill to the 0 percent balance if they so desire. But they must apply everything above that minimum payment to the highest-interest balances on your card, before moving on to balances charging lower interest rates.
Mind you, this makes it doubly important to always pay more than the minimum, and to pay off your balance as soon as possible after accepting a balance transfer offer. But if you can do that, then there’s simply no reason not to take advantage of credit card companies’ newfound “generosity” on balance transfer terms — while it lasts.
[source : dailyfinance.com]