December 8,2008
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Balance Transfers (101), Pt.1 –
– Then and nowThe good deals are dwindling. For the longest time, a player could secure a credit card with 0% interest on purchases (called a ‘teaser rate') for a portion of a year. Then, when the 0% promotional offer was about to run out, a person could simply transfer the entire balance into a new credit card account offering a 0% interest on balance transfers (also called a ‘teaser rate') promotion with no transfer fees. That way, a person could keep accumulating credit card charges yet, not owe any interest on the debt while still making only minimal monthly payments. Great deal! But that time is finally coming to an end after eight long years.
A balance transfer, of course, is where a debtor transfers a debt from one account to another (typically credit cards, but not always). This could apply to only a portion of the debt or to the whole thing. There could be many reasons for doing this but, the most common reason is to achieve a lower interest rate. Other reasons might be inconvenient payment terms from an old account, terms gone sour or just to consolidate debt all into one account. Monthly credit card payment terms can usually be lowered in this move, also.
Originally, most of these offers came with no strings attached. The credit card lender was hoping, in good faith, that some of the balance would remain after the promotion ran out. Fair enough. But, as more and more lenders started doing this, it became evident that many card holders would simply transfer that balance to yet, another competitor each time the promotion was about to run out. As this trend continued, the banks realized that they were coming up with no gain at all – only a loss. This great deal couldn't last forever.
Inevitably, in the last few years, things have begun to subtly change. As new credit card offers with ‘free' balance transfers started arriving in the mail they still looked the same as the old ones did. But, they had a little tweak put into them. I suspect that, like myself, most people didn't notice this until their first billing statement showed up.
Even though a standard term in the credit card industry, many people were not aware of the ‘Balance Transfer Fee'. Only a few credit card issuers employed this trick at first. It didn't take long to catch on and soon, the skaters were soon gliding past this hurdle in their quest for interest-free debt forever.