Home > Credit Cards > The Ups And Downs of 0% Balance Transfers

Comments 0 Comments

[UPDATE: Some offers mentioned below have expired and/or are no longer available on our site. You can view the current offers from our partners in our credit card marketplace. DISCLOSURE: Cards from our partners are mentioned below.]

To a credit card user in debt, a 0% APR balance transfer can seem like a lifeline. These offers allow new cardholders to pay off their existing credit card balances that are transferred to their new card. But do these ubiquitous offers make sense for most cardholders? Let’s examine the key benefits and drawbacks.

Advantages of Promotional Balance Transfer Offers

The obvious advantage of these offers is that the customer can receive a 0% APR interest rate for as long as 18 months. For instance, if a cardholder owes $5,000 with an interest rate of 15%, then the savings in interest payments over a year and a half would be $1,125. Even with the most common balance transfer fee of 3%, the cardholder would only pay $150 for a net savings of $975.

But the real advantage is gained by cardholders who use these savings to pay down or eliminate their debt. And since most of these promotional financing offers include both new purchases and balance transfers, cardholders get a break from interest on their existing debt as well as new purchases made with their card. This is important as even those who are paying down their balance steadily each month continue to incur interest on new charges from the time of the transaction until a payment is made.

Disadvantages of 0% APR Balance Transfers

As great as these offers are, there are still some serious drawbacks that cardholders should consider. First there is the balance transfer fee. Nearly all credit cards will charge a balance transfer fee equal to 3% of the amount owed. Therefore, cardholders with competitive interest rates who can pay off their debt within a few months may actually be better off without transferring their balance. The exception is the Slate card from Chase which is currently the only product on the market without a balance transfer fee. Keep in mind that even this offer is only valid on balance transfers conducted within the first 60 days of opening an account.

In addition, accepting a promotional financing offer can have a small, but significant effect on your credit score. Cardholders who utilize these offers may continue to carry debt over a longer period of time. This can affect their debt to credit ration which is a minor component of their credit score.

Another factor that few cardholders consider is that balance transfers cannot be conducted within the same institution. Therefore, a customer who owes money on his or her Chase Freedom card cannot receive a Slate card from Chase in order to pay off the balance on the Freedom.

But the most important issue regarding balance transfers is the inherent psychological effects of these promotional financing offers. These cards allow customers to pay a small fee up front with the hopes that they can pay off their balance in the distant future. Yet the mere fact that they have a balance that is not being paid down in the short term is evidence that they may have difficulty doing so in the future. To make matters worse, the accompanying 0% APR financing offers on new purchases reinforce the belief that cardholders can continue to incur debt with impunity. Sadly, credit cards have always had disastrous consequences when used by consumers who are unable to restrain their spending. Offering a reprieve from the responsibility to repay their debts with interest may be akin to telling an alcoholic or a smoker that they can indulge their habit now and worry about the consequences later.

Ultimately, balance transfer offers are only as good as the payment behavior of the cardholders who accept them. By utilizing a 0% APR promotional balance transfer offer as part of a realistic debt reduction plan, responsible cardholders wall start to pay down their debt, not stop.

Image: Visentico / Sento, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team