Credit card debt is rising. For example, the number of consumers looking for balance transfer cards.
Do you think there is a connection? You can bet your 0% interest on it.
A combination of factors will likely shorten those 0% rate windows and allow cards to become scarcer this year, even as demand for the cards grows.
“Over the past few years, there has been a steady increase in people looking for balance transfer cards,” said Robert Harrow, credit card analyst at Value Penguin. “It tracks pretty well with revolving debt.”
Related: Is a Travel Rewards Card Worth It?
Balance transfer cards, which offer a 0% interest rate on debt transfers from another card over a period of time, are used by cardholders who have hefty balances on high-interest credit cards.
By paying off the high-yield card with the 0%-interest-rate balance transfer card, cardholders start the clock aggressively paying off their debt during the interest-free window. These periods can vary from 9 months to 21 months.
The cards can save users thousands of dollars in interest rates.
But several forces are coming together to make balance transfer card terms less favorable to consumers, Harrow says. He points to the likelihood of rising interest rates in the coming year, declining profitability of bank balance transfer cards, and an increasing number of cardholders “gambling” the high-end rewards cards by using balance transfer cards to pay off their debts and then never again. use the balance transfer card.
“This will lead to shorter 0% periods on balance transfer cards, less breathing room, giving people less time to pay off their debts,” Harrow says.
in a city profit call in JanuaryJohn Gerspach, its chief financial officer, reported that the company is experiencing “headwinds” from cardholders who don’t have a balance on them. They can spend a lot to earn bonus points on reward cards, then transfer any remaining balance to a 0% interest card and pay it off in the 0% interest window.
Credit card companies don’t make as much money from customers who pay off their debt during the promotional period. They bet you don’t meet the deadline and your old debt will then pay them off if the card is reset to a much higher rate.
Gerspach said during the call that to stabilize as they move into an “rising rate environment,” their actions will include “shortening or eliminating the promotional period for certain offers.”
So should you hurry and get a balance transfer card before the promotion windows close?
Calm down, Harrow says.
“I would never tell anyone to run in,” he says. “But people who have credit card debt should see if it makes sense to you now and how long it will take to pay off this debt.”
Here are a few things to keep in mind when choosing a balance transfer card.
Balance transfer fee
Typically, balance transfer cards charge a fee towards a promotional interest. The fees can usually range from 3% to 5% of the amount you transfer. You can search for a card with no balance transfer fees. Also, you’re not doing yourself a favor by going with a card that charges an annual fee.
Balance transfer APR vs. Purchase APR
You found a card with 0% interest on the balance you transferred, so you can use that card for other purchases and pay no interest, right?
Not so fast.
Many cards with promotional interest rates for balance transfers charge a more typical interest rate for new purchases made on that card. You should look for the cards that offer a promotional rate of 0% for balance transfers for a certain time and also 0%, for a certain time, for new purchases.
Balance transfers and your credit score
Usually, balance transfer cards are offered to those with good credit. Using one card to pay off another won’t affect your credit, but if you’re not careful, your credit could still be dented.
Combining balances from different cards on one card can negatively affect a measure of your credit called credit utilization, which is how much of your available credit you use. As a general rule, you should not use more than 30% of your available credit. Putting multiple large balances on a single card can break that guideline, which can lower your credit score.
CNN Money (New York) First published February 12, 2018: 12:35 PM ET