From wsj.com By ANDREA COOMBES
For consumers drowning in high-rate credit-card debt, balance transfers — those “0% for 12 months!” offers — are often important, if temporary, lifelines. For anyone else with credit-card debt, they’re a useful way to keep interest-rate payments low.
But as credit-card issuers themselves flail in stormier economic seas, some are making such offers more restrictive and expensive. That means consumers must make sure that transferring their debt makes prudent financial sense.
Fees have changed. Before, a balance-transfer fee was typically 3% of the amount transferred — up to a maximum of about $50 or $75, depending on the offer. These days, the fee is still usually 3%, but the cap is gone. The more you transfer, the more you pay. For instance, transferring a $5,000 balance is likely to cost you $150 today, twice as much as in past years.
Another change: Though some credit-card issuers still offer 0% balance-transfer rates for 12 months or more, others are hiking the introductory interest rate and shortening the length of time it’s offered. “They used to be almost always 12 months. Now they can be as short as three months,” says Bill Hardekopf, chief executive of LowCards.com in Birmingham, Ala.
Higher Interest Rates
And those interest rates? “Some of the introductory rates are no longer 0%, but are anywhere from 2.99%, 3.99%, 4.99%,” Mr. Hardekopf says. Some issuers also are limiting how much debt can be transferred, he says. “As the economy gets tighter and tighter, issuers will be looking for more and more ways to increase their profits, and some of the attractive perks we’ve seen may be in line to fall by the wayside.”
These changes to balance-transfer offers come even as credit-card issuers are hiking rates, raising fees and lowering credit limits on customers’ current accounts. While moving balances to a new card can be a smart move for those who find themselves subject to such changes, the decision to transfer a balance now isn’t the shoo-in it used to be.
Still, even as some credit-card issuers move to reduce the risk on their balance sheets, others are seeing an opportunity to gain market share. Some lenders “obviously are in retrench mode,” says Justin McHenry, president of IndexCreditCards.com, a credit-card research company in Cleveland.
By their actions, these issuers are saying: “We’re going to pull back right now. We’re going to be a little less generous. We’re going to see how the next quarter plays out…then maybe we’ll get more aggressive,” Mr. McHenry says. But other issuers “are looking at their bottom line” and seeing an opportunity to gain new customers.
Companies Compete
Among some of the major issuers, Mr. McHenry says, Bank of America and Capital One are offering more aggressive deals, while Citigroup and American Express “are really in the retrench mode.”
While the higher fees on balance transfers will affect any consumer with a big debt load, other changes may hit less-creditworthy consumers harder.
For instance, “someone with excellent credit might be able to get an attractive rate for 12 months, whereas someone with average credit might only get it for six months,” Mr. Hardekopf says. The balance-transfer interest rate, too, might vary based on credit rating.
No matter what your credit score, it makes sense to shop around. “There are still attractive offers out there. Consumers might have to go looking for them,” Mr. Hardekopf says. “It certainly helps to have a very good credit score. Anything a consumer can do to increase his or her credit score will help that person, not only with their current rates, but also their other loans they might be applying for.”
Do the Math
Now that balance transfers are more expensive, assess the cost of the offer against how long it would take you to rack up an equal amount in finance charges on your current card. Don’t forget to check the terms carefully, including the fine print on how long the introductory rate lasts.
If you do sign up, make a copy of the term details. Also, if you use one of those checks provided by the credit-card issuer, make a copy of that, too, says Gerri Detweiler, credit adviser with Credit.com, because sometimes the checks themselves will include pertinent offer details, such as the interest rate, that may differ from other offer materials.
“The bottom line is you really have to watch out,” Ms. Detweiler says. “More than ever, these offers can be a minefield.”
And don’t forget your main focus: Whether you tap into a balance-transfer offer or not, the most important task is to get going on paying down that debt.