A growing number of balance transfer cards are giving cardholders at least 15 months to carry an old balance for free, a new CreditCards.com survey found. But with higher fees and pricey regular APRs, picking a card without glancing at its terms and conditions is risky.
If you’re shopping for a balance transfer card, you shouldn’t have much trouble finding one with a lengthy promotion.
A growing number of balance transfer cards are giving cardholders at least 15 months to carry an old balance for free, a new CreditCards.com survey found. Meanwhile, several cards now let you skip paying a balance transfer fee altogether.
But beware of committing to the first alluring offer you see: picking a card without first glancing at its terms and conditions has grown riskier this year, according to CreditCards.com’s latest balance transfer survey.
For example, among the cards that charge you to transfer old debt to a new card, a growing number are demanding record high fees, potentially leading to hundreds of dollars in new charges. Standard APRs are also near record highs, despite recent drops in the prime rate.
“It’s not a favorable time for consumers from an APR and pricing perspective,” says Andrew Davidson, chief insights officer at Comperemedia.
If you look beyond the glossy allure of a lengthy 0% balance transfer promotion, there’s a good chance you’re being asked to pay significantly more to handle your debt than would have been charged a few years ago.
“There are still a lot of good offers out there,” Davidson adds. “But as a consumer, you have to be savvy.”
Balance transfer cards more generous – but they’re also more expensive
For this year’s survey, we looked at a representative sample of 100 cards from some of the nation’s biggest issuers, including 90 cards that support balance transfers and 45 that advertise a balance transfer promotion. We found that several card issuers have quietly revised their balance transfer terms, making long-term debt even pricier.
Here are some of the most significant findings from CreditCards.com’s balance transfer survey:
2020 Balance Transfer Survey key findings
0% balance transfer deals abound
Among the 100 cards in our sample, nearly half offer some kind of balance transfer promotion.
- 38 cards offer an interest-free balance transfer deal, while seven cards offer low-interest financing.
- Balance transfer promotions are especially common on no-annual-fee cards designed for everyday purchases. Among the 70 no-annual fee cards that support balance transfers, more than half advertise a 0% APR promotion.
- Just two premium cards, by contrast, advertise an introductory balance transfer.
Lengthy balance transfer periods are now the norm
Among the 38 cards that advertise a 0% balance transfer APR, most give cardholders well over a year to pay off their debt before the card’s standard interest rate kicks in. That’s a significant shift from last year when most balance transfer cards limited cardholders to 12 months or less.
- Twenty give cardholders 15 months to carry an old balance interest-free – up from 17 in 2019. One card gives cardholders 14 months.
- A handful of cards offer extra-long promotions. Three cards give cardholders 18 months to pay off a balance. One card gives cardholders 21 months.
- Yearlong promotions have become significantly less common. Just 10 cards give cardholders 12 months to carry an interest-free balance – down from 17 in 2019.
- Three cards give borrowers even less time: just 6-9 months at most.
Standard balance transfer fees are growing
Fees starting at 3% used to be the norm. However, many lenders are now replacing them with fees as high as 5%. Among the 90 cards that support balance transfers:
- Forty-five cards charge a standard 3% balance transfer fee – down from 50 cards in 2019 and 55 cards in 2017.
- Twenty-six cards charge 5% to transfer a balance – up from 18 cards in 2019.
- Six cards charge 4% to transfer a balance.
- Not all lenders are tacking big fees onto their balance transfers, though. Fourteen cards included in the survey don’t charge a balance transfer fee at all.
Several lenders are now advertising temporary 3% balance transfer fees
Rather than charge a long-term 3% fee, some lenders are now marketing a 3% fee as an introductory promotion, then hiking fees to 4 or 5%.
“It’s kind of a creative way of trying to come up with an appealing offer for consumers,” notes Davidson.
- Twelve cards offer a temporary 3% balance transfer fee – up from five in 2019.
- Five of the cards that currently offer 3% promotions used to charge the same fee on all balance transfers – not just promotional ones. In 2019, for example, Discover charged a standard fee of 3% across the board. Now, it charges 3% for a card’s first three months, then hikes the fee to 5%. Similarly, Chase increased the standard fee on the Chase Freedom card from 3% to 5% ($5 minimum). However, it allows brand-new cardholders to pay 3% if they transfer a balance within 60 days.
Some lenders still allow free, interest-free balance transfers
It’s still possible to transfer a credit card balance without paying a dime in fees or interest.
- Three cards offer a promotional $0 balance transfer fee, paired with a 15-month 0% balance transfer deal. One balance transfer card with a 15-month interest-free promotion doesn’t charge a balance transfer fee at all.
- Fourteen cards waive balance transfer fees altogether. But among those cards, only one pairs a fee waiver with a 0% APR. Three cards with zero balance transfer fees offer low-interest promotions. Two cards charge a balance transfer fee only if you take advantage of a 0% APR promotion.
Average balance transfer APRs are down slightly – but still near record highs
Once a card’s promotional rate expires, you could get hit with a hefty APR on your remaining balance. The average balance transfer APR – taking into account a card’s lowest and highest possible rate – has ticked down slightly since 2019, falling to 20.38%.
However, today’s balance transfer rates are still much higher than were a few years ago when median rates above 20% were much less common. In 2017, for example, the average standard balance transfer APR was 18.45%.
Economic uncertainty may be fueling higher fees and charges
According to Davidson, lenders may be treating credit card offers more cautiously and quietly hiking fees because they are worried about another economic downturn.
The U.S. is currently enjoying its longest expansion in history. However, experts say the economy is bound for another contraction at some point, which could lead to more cardholders falling behind on bills.
To prepare for the possibility that the economy may sour sooner rather than later, banks appear to be quietly tightening offers. Although banks typically offer higher rates to consumers with lower scores, even borrowers with good to excellent credit are being presented with historically high rates and fees – despite a relatively low prime rate.
For example, Comperemedia, which tracks direct mail, has recently seen a record share of offers advertising APRs above 20%. That’s a risky APR for borrowers who have taken advantage of a 0% balance transfer offer and then wound up with debt left over.
“The spread between the prime rate and the APR [on new card offers] is the widest we’ve ever seen it,” notes Davidson.
Like CreditCards.com, Comperemedia has also seen more balance transfer fees starting at 3%, then resetting to 5% – a difference that can potentially add hundreds of dollars to a balance.
According to Davidson, the higher fees and charges could backfire on banks if the economy turns south and cardholders are unable to manage their most expensive debts.
“It’s potentially unsustainable for consumers,” he says. “If we do start to see a bit of a downturn, it could lead to many consumers with an unmanageable debt burden.”
See related: What happens when your 0% introductory period ends?
Attractive promotions are likely to continue – for now
Rather than lure new cardholders with lower rates and fees, most issuers appear to be focusing on juicier rewards and introductory promotions – a strategy that’s working.
“Credit card companies are so good. They know that the 0% interest rate is what sells people,” says accredited financial counselor Stephen Newland.
Despite the hefty charges, consumers’ appetite for credit remains fierce, with the Federal Reserve recording more than $1 trillion in revolving debt.
Most consumers who actively use their cards choose to carry a balance, according to the American Bankers Association.
But several studies have found consumers tend to ignore their cards’ terms and conditions.
“A lot of people don’t even know what the interest rates are on their cards,” notes Newland.
That, in turn, has created an opportunity for card issuers eager to retain customers who carry a balance. Since consumers frequently pay more attention to a card’s promotion than its fine print, issuers are able to get away with hiking fees, without losing a ton of customers.
The good news is that cardholders who handle their balance transfer cards more strategically have plenty of low fee options to choose from, with long enough promotional periods to ideally pay off their balances in full.
According to data published by financial firm Credit Suisse, issuers have been targeting potential revolvers more aggressively in recent months, which could also benefit consumers.
For example, 64% of offers mailed in November advertised a 0% APR balance transfer, up from 62% in 2018. The average balance transfer period on direct mail offers has also ticked up, reaching an average of 14.2 months in November.
According to Credit Suisse analyst Moshe Orenbuch, lenders are likely to stick with their current strategy for the foreseeable future and may even modestly increase the number of balance transfer offers they mail – especially if federal interest rates remain low and banks continue to record relatively few late payments.
Issuers are feeling the heat from alternative loan options
Issuers may also boost promotional offers in an effort to compete with alternative lenders – some of whom are offering their own low and zero-interest financing options.
“One of the big shifts now is that you have a lot of alternative options to balance transfers,” says Davidson.
For example, lower rate personal loans and point-of-sale financing have become increasingly popular in recent years – especially with young people – prompting card issuers to debut their own alternative lending options.
American Express, for example, offers a fee-based installment plan for select credit card purchases. Citi offers a fixed APR plan, while Chase is getting ready to debut its own low-interest payment plan for cardholders.
For some consumers, these lower-cost lending options may help lessen the need for riskier balance transfers. Increased demand for more affordable financing may also ratchet up the pressure on lenders to come up with more creative options for consumers.
Already, Discover has added a promotional introductory 10.99% balance transfer APR to to its secured credit card (Discover it® Secured Credit Card), which is an unusual offer for cardholders rebuilding their credit. The promotion lasts just six months, with a regular APR of 22.99% variable thereafter.
But according to the National Foundation for Credit Counseling’s Bruce McClary, “a 10.99% APR, even if it’s temporary, can give you a considerable break and allow you to repay a balance that you would have been struggling with otherwise.” Just make sure you know what APR the card resets to once the promotion is over, notes McClary.
You don’t necessarily have to move all your debt to secure a lower rate either. Depending on your recent payment history, you may be able to negotiate a lower rate with your current card issuer.
“It never hurts to ask,” McClary said. “One of the great things about having an account in good standing is that you have some power of negotiation.”
See related: Do balance transfers hurt your credit score?
Don’t let a 0% rate slow down your debt payments
If you plan to apply for a balance transfer card, do your research now to avoid unwelcome surprises.
April Lewis of Consolidated Credit recommends looking at your income and expenses and listing all the balances you have, along with their current APRs. That way, you know which debt to move first, and how much you can afford to pay each month. Then divide the total amount of debt you need to transfer by the number of months a card offers.
If you can’t afford to pay most of your debt within the promotional period, you may want to consider other options – or only transfer debt you know you can pay off by the deadline.
Don’t be afraid to ask for help either if you’re having trouble assessing your situation. For example, “all nonprofit credit counseling agencies will do a free budget analysis,” says Lewis. A counselor can also help you navigate your options.
Once you’ve identified a handful of quality cards, compare their standard APRs and fees. Although a 5% fee may not sound like much, it can make a serious difference. For example, if you transfer $5,000, a 5% fee will cost you $250. A 3% fee, by contrast, will cost $150.
Then, once your card arrives, prioritize your payments, adds Newland. Many of his clients get into trouble, he says, because they became too complacent with their debt once they’ve moved it to a lower rate card.
Sometimes taking a positive step can give people a false sense of security, he says, dampening their motivation to aggressively tackle debt. Then, when a card’s APR jumps to a higher rate, the charges that follow often come as an unwelcome, and expensive, surprise.