Are Balance Transfer Credit Cards Dying Out?

By Steve Sildon, on February 16, 2009

As a result of the ongoing credit crisis that seems to be hobbling everyone, consumers are starting to see more and more fees for credit card services and features that we all had grown accustomed to getting for free. Credit has simply gotten more expensive in a very short amount of time for all of us. Card issuers are raising interest rates and the fees that they charge their customers. Everyone is feeling the pain, myself included.

Photo by Classyshot via Flickr

Fee Changes

You may be asking, “What exactly has changed?” Well, in the past, new cardholders enjoyed no fee balance transfers that didn’t cost a dime to move from one card to another. But recently, balance transfer fees have spiked, and are now hovering around 3% of the total balance being transferred.

In the past, these transfer fees had a “cap” or a maximum fee typically around $75 — not anymore, though. Nowadays, there usually is no cap on a transfer so the more money you transfer to a new credit card, the more you’ll pay in fees. For example, if you transfer a $10,000 balance with a 3% fee, it’s going to cost you $300 in fees alone right off the top. Yikes!

New Limits on Limits

All of these changes seem to have come at exactly the wrong time. Even though card issuers haven’t eliminated their balance transfer offers entirely, they’ve made it much more expensive and harder to come by for the average person. Card issuers have cut credit limits substantially and few of us have been left untouched. For seemingly no reason at all, I’ve seen my own credit card limit cut in half.

While it’s true that new cards are still being approved, credit limits on new credit cards are much smaller than in the past. Even for new cardholders, card issuers are setting much smaller limits on what can be transferred. So if you’re looking to make a large balance transfer on a brand new card, best of luck to you!

Term & Period Changes

There are other changes being made that many of us are totally unaware of. Some credit card companies still offer a credit cards with interest free introductory rate on balance transfers. However, many are allowing only half of the traditional 12 months period that they did in the past. For other card issuers, the introductory time period is a meager 3 months.

If that’s not enough, you may have noticed that interest rates on balance transfer cards are also going higher. It used to be that the introductory rate on balance transfers was always 0%, but not anymore — now, rates are up to 4.99% and beyond. Combined with shorter intro periods and higher transfer fees, balance transfers have gotten very expensive very quickly.

Are Credit Card Balance Transfers Still a Viable Option?

Card issuers are desperate right now — that’s the bottom line. They’re looking for as many ways to goose their profits as possible and they’re changing their policies across the board. In the past, many of us have used free balance transfers as a way to consolidate our credit card debts and reduce the amount of interest that we had to pay. But with all the recent changes, this may no longer be the best choice for many us. These sweeping policy and fee changes taking place in such a short period of time have simply made it too expensive for many of us.

Those of you who might be planning to apply for a new card with the intention of using the balance transfer feature will now need to be extra cautious about the terms and conditions of many of these offers. You need to have a full understanding upfront of all the costs and that’s if the balance transfer will even be possible at all. In particular, watch out for the changes that will take effect right after the introductory period expires on the transfer itself. It may actually be more expensive to transfer a balance to a card if after the introductory period expires, the rate will go higher than the rate on your original card.

Think twice if you plan to carry a balance beyond the introductory period.

Due Diligence Required

So, the balance transfer game has changed in a big way. To be fair, it has gotten much more expensive for all of us, including card issuers themselves. You just have to do your homework on this particular matter, now more than ever to avoid getting burned. You risk getting caught with yet another additional financial burden in your lap at exactly the wrong time if you don’t do your homework. And while it’s true that balance transfers are more of a financial mine field for consumers than ever, those who are willing to do the leg work, investigate and compare the different balance transfer features that are still available should not dismiss them entirely.

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Steve Sildon is the Managing Editor for CreditCardAssist.com. Steve writes on a variety of personal finance and credit-related topics, including credit cards, rewards programs and debt consolidation.

All posts by Steve Sildon

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