Every time I sign up for a card, I get an offer to transfer a balance. Even when I am using an existing card, I am still always encouraged to transfer balances. What is the point?

A Lot Of Fees

Clearly, the fees are the point for the credit card companies. Even the “0% Transfers” typically include a 3% fee. Remember that 0% is an APR or “Annual Percentage Rate”, while the 3% “balance transfer fee” is an immediate 3% tacked on to what you transferred.

For reward card enthusiasts like me, there is never any reason to transfer a balance. The balance transfer fee easily negates any benefit or reward I might gain by transferring my balance from one card to another. That is because I never pay interest, so the 3% is money down the drain.

What If You Get A Better Rate?

If you are paying interest on your credit cards, and I hope you are not, you should still think long and hard before transferring a balance. If the difference in APRs is small, or you intend to pay off the balance soon, you might not be any better off transferring to a lower APR card. Again, that 3% will hit you instantly, while the difference of a lower APR is spread out over a year. Essentially, if I transferred a balance to a an account with an APR that is only 3% lower, and I was paying it off with in a year, I would be better with the old card, assuming a 3% balance transfer fee.

Be Careful!

When you get the offer for a low introductory APR on a balance transfer, always keep in mind that your payments will apply to the lower APR balance first, then the higher. Charge anything to that card, and you will be charged the standard, higher APR until it is paid off. Fortunately, this is one of the practices that will go away when the new rules go into effect in June of 2010. Only then will banks be required to apply payments to the highest APR balances first.

Be Extra Careful With Chase

According to the Consumerist, Chase bank has been caught adding a $10 a month fee to anyone who has ever done a balance transfer. This is possibly illegal and definitely wrong. If anything, this is another good reason never to bother with balance transfer.

This entry was posted on Tuesday, January 20th, 2009 at 23:22 and is filed under Maximize your Credit Card Rewards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.