As someone who has made her share of financial mistakes regarding debt I am not a big fan of Balance Transfers. However, as a financial services employee I am a big fan of Balance Transfers. Banks make a lot of profit from clients carrying balances and paying interest on their credit cards.
When I was an older teenage and a young adult I lived on credit. Now as a professional soon to be 31 year old, my best Credit Card advice is that we shouldn’t spend more money on our Credit Cards than we can afford to pay off. I now only use my credit card for purchases to build and maintain my good credit history. I pay off the balance at the end of each month to make sure that I don`t fall back into bad habits, and to avoid paying interest.
The subject of Credit Card Balance Transfers is coming up because I had a client come to my office on August 31 who was desperate to apply for a new Credit Card. He explained to me that today was the last day of the low interest promotion on his current Credit Card, and he wanted to apply for a new Credit Card with a new Balance Transfer promotion.
Due to the high balance on his previous credit card and the amount of credit he currently has compared to his income, we were unable to approve him for a new credit card in the branch. I was obligated to send his Credit Card application to our Credit Adjudication department and it could take up to 3 days to receive an answer. The client was less than pleased that we couldn’t approve his new Credit Card instantly and that he may have to pay 3 days of interest on his Credit Card. It is a big misconception amongst people that having existing credit automatically guarantees them to obtain more credit. This statement couldn’t be more false.
Instead of paying off our Credit Card balances by obtaining more credit in the form of a Balance Transfer, we should just pay off our Credit Card Balance. No good can come out of transferring our balances between Credit Cards every three, six, or twelve months. Credit Card Balance Transfers are a Band Aid solution because the Credit Card Balance is not being paid off; it is just being moved around. Every time we apply for a new Credit Card to transfer our existing balance we get a hit on our Credit Bureau, and this lowers our Credit Score. There may also be various fees associated with Balance Transfers.
In Case I haven’t convinced you that Balance Transfers Are Bad, here are some Banks that are currently offering Balance Transfer Promotions:
Bank of America is currently offering 0% APR on Balance Transfers made within 60 days of the account opening. BOA Balance Transfers are subject to a 4% transaction fee.
Wells Fargo clients can directly request a Credit Card Balance Transfer through Online Banking. Wells Fargo Balance Transfers are subject to a 5% transaction fee.
Capital One offers clients different Balance Transfer options depending on the Credit Card they choose. Some Capital One Credit Cards offer a $0 transfer fee with a 24.9% interest rate, or a 10.9%-18.9% interest rate with a 3% Balance Transfer Fee.
Photo by Robert Scoble