Balance Transfer Competition Heats Up


My best advice for getting out of credit card debt is to get a 0% balance transfer card. These allow you to transfer your existing high-cost credit card debt to a new card, with a promotional interest-free rate that lasts up to 21 months.

To my pleasant surprise, these offers have become even more generous in recent months, despite the Federal Reserve’s series of interest rate hikes. In the past, when rates increased, balance transfer promotions were often shorter and incurring higher fees. This is not the norm at the moment.

In fact, earlier this week, Bank of America extended the term for 0% balance transfers on the BankAmericard® credit card from 18 to 21 months (provided transfers are completed within 60 days of opening Account). The balance transfer fee is always 3% (minimum $10). The variable APR after the expiration of the promotion is between 14.24 and 24.24%, depending on the creditworthiness of the cardholder.

The BankAmericard is now linked to the Wells Fargo Reflect® card, Citi Simplicity® card and Citi Diamond Preferred® card for the longest interest-free balance transfer period on the market. The interest-free balance transfer duration of the Reflect card is technically 18 months, although it can be extended up to 21 months provided all payments are made on time. The Reflect card debuted last fall, and over the past year, Wells Fargo and Bank of America have joined Citi at the longer end of the balance transfer market.


Reflect also has a 3% transfer fee (in the first 120 days of account opening, it then increases to 5%, both with a $5 minimum). Both Citi cards have a 5% transfer fee ($5 minimum) and require these interest-free balance transfers to be completed within four months of account opening.

After promotional periods, regular variable APRs are 15.24-27.24% on the Reflect card, 16.99-26.99% on the Simplicity and 15.99-25.99% on the Diamond Preferred .

Why do card issuers offer 0% balance transfers?

These promotions are best viewed as marketing tools that attract new customers. They are essentially loss leaders. During the company’s third quarter 2021 earnings call, Citi Chief Financial Officer Mark Mason said that about half of those promotional balances were not fully paid by the end of the introduction of the 0% APR. At that time, the interest rate skyrockets, and suddenly this customer relationship can become very profitable for the card issuer.

How to Use Balance Transfer Cards to Your Advantage

While many balance transfer cards also tempt cardholders with 0% introductory APRs on new purchases, I suggest refraining from making additional purchases with these cards. The best way to use a 0% balance transfer card is to move your high-rate balances from one or more cards, then divide what you owe by the number of months in your interest-free period and try to stick to this fixed payment. to plan.

There is a time and a place for a 0% introductory rate on new purchases – for example, spreading the impact of a big ticket item like an appliance or piece of furniture – but mixing that approach with existing debt makes the payment process much more complicated. Essentially, it forces you to hit a moving target.

The typical minimum credit card payment formula is just 1% of the balance plus interest each month. If you only pay the minimum on a balance transfer card, you’ll have to make up a big difference at the end to avoid a high interest rate. That’s why trying to stick with this level payment plan is a much better approach.

The math is brutal if you’re only making minimum payments on a credit card that charges interest. The average credit card rate is 17.67%, very close to a record high. If you owe $5,270 (the national average, according to TransUnion) and make minimum payments at 17.67%, you’ll be in debt for 193 months (over 16 years) and owe a grand total of $6,418 in interests.

This illustrates why a balance transfer card can save you so much money, provided you pay off your balance in a timely manner. If you can afford $251 a month, you could pay off that $5,270 in 21 months without any interest. (That doesn’t include the 3-5% transfer fee, which would be between $158 and $264 in our example, but it’s a small price to pay compared to the alternative.)

How to qualify for a 0% balance transfer card

You probably need good to excellent credit to qualify for one of the best balance transfer cards, which often means a credit score of 670 or higher. The average American has a credit score of 716, according to FICO, so these offers are within reach for most people.

A bigger hurdle might be getting a high enough credit limit to transfer your entire balance. In recent years, card issuers have been more stingy with credit limits than with approvals. The average credit limit for a credit card account created in April 2022 was $4,993, according to Equifax. That’s down about 5% from $5,267 in 2019, even though more credit cards were issued in April 2022 than any other April on record. From April 2019 to April 2022, creations increased by 23%.

In other words, if you have a large credit card balance (especially $5,000 or more), you may not be able to transfer your entire balance, especially if your credit score is less than perfect or if your income is less than the card issuer would like. .

The bottom line

If you’re struggling with credit card debt, my favorite tip is to use a 0% balance transfer card to pause that interest clock for up to 21 months. You can also consider alternatives such as personal loans (rates are as low as around 6% if you have good credit), nonprofit credit counseling, and basics like earning more and spending less. An interest-free balance transfer promotion is probably the best way to get out of debt relatively quickly at the lowest possible cost.

Have a question about credit cards? Email me at [email protected] and I’d be happy to help.


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