Balance transfer cards are back. Many of the offers for these types of cards, which let borrowers transfer big balances from one credit card to another and pay them off over the course of a set number of months at 0% interest, all but disappeared in 2020 as the pandemic made banks skittish about the economy's future.
"When Covid hit, these offers just totally dried up," says Ted Rossman, senior analyst at CreditCards.com. "Companies were worried enough about Covid and jobs and the economy and worried that their existing customers wouldn't pay them back. The last thing they wanted to do was to take on existing debt that somebody has with another company."
Those concerns ended up being short lived. Many Americans have used the pandemic to improve their overall financial health: They're saving more and paying down credit card debt. In fact, the share of outstanding credit card debt, the balance that borrowers carry from one month to the next, to disposable income is now below 4%, according to the American Bankers Association.
That's the lowest level it has ever been since the group began tracking that statistic in 1999.
Consumer spending also rebounded quickly after the pandemic was first declared in spring 2020, and it's been pretty robust ever since.
All that has made credit card companies hungry for new customers, Rossman says, and balance transfer cards are a great way to attract new business. "Banks are looking to grow again," he says. "After really being hunkered down, this space has really opened back up."
And, when used wisely, balance transfer cards can be a great way to lower the cost of paying down your revolving credit card balance.
The mechanics of a balance transfer card are straightforward: You're taking one credit card balance and moving it to a new issuer. There's typically an initial transfer fee, around 5%, Rossman says, but the new card usually comes with an introductory period, between 12 and 20 months, of 0% interest.
For example, you might pay $250 to move your $5,000 credit card balance to your new card, and then you could have 18 months to pay it off, interest-free. By contrast, you'd end up paying more than $650 in interest if you were to pay that balance at 16% interest, according to Bankrate's credit card calculator.
Using a balance transfer card "can save you a ton of money in interest," Rossman says, which can make the initial fee "well worth it."
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Balance transfer cards can be great tools to chip away at or eliminate your debt, but they do come with the risk of temptation to spend more, Rossman says: They are "a customer acquisition tool" that cater "to people with debt."
Credit card companies are hoping "you're going to move this money, you're going to pay no interest for a while, but then at the end of the term, you're still going to have something left," Rossman says. "At that point, the interest rate can go up dramatically."
So, to make your new card work for you, resist the temptation to spend: "The best thing that you can do is to not put any more purchases on the card," Rossman says. "Even though you might get no interest on those new purchases, it just becomes a moving target."
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Balance transfer cards work best when you're disciplined and use them as a means to an end, Rossman says. Start by dividing your balance on the card by the number of months of 0% interest the issuer is giving you, and make that number your monthly payment. Following that simple math, you'll have paid off your balance without having paid a cent in interest.
"Knock it out by the end of the term," Rossman says, or "you could get trapped in a situation where you still owe a substantial amount, and then interest hits, and then that's a problem."
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