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5 new rules in the credit card balance transfer game

Allie Johnson
Personal Finance Writer
Award-winning writer covering consumer and small-business credit cards.

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Transferring a credit card balance used to be so easy and painless that some consumers referred to it as a game: Sort through a stack of offers, find the best deal and you win. Now, fewer offers, shorter introductory periods and higher fees make finding a good balance transfer deal a much more challenging job. 5 new rules in the credit card balance transfer game

“Balance transfers are harder and more expensive than ever,” says Jim Randel, author of “The Skinny on Credit Cards.” “This is all part of the pullback in the credit card industry.”

The availability and attractiveness of the terms of the best balance transfer offers has taken a downturn right along with the economy — but card issuers also point to new federal credit card legislation, passed in May and slated to take effect next year, as the reason for even more changes.

In July 2009, JP Morgan Chase, the largest credit card issuer in the country, cited the new federal regulations when it sent letters to its customers stating that the bank will increase its maximum balance transfer fee to 5 percent — the highest charged by any issuer.

“In a higher-loss environment, it’s important that we are prudent with our balance transfer offers,” Chase spokeswoman Stephanie Jacobson stated in an e-mail, adding that the increase would not apply to all deals or customers. She would not, however, say who would be affected. Bank of America — the second-largest issuer — has increased its maximum balance transfer fee to 4 percent.

The standard balance transfer fee had been about 3 percent — and some issuers also limited the total fee, often to less than $100, with caps. “It used to be common for issuers to cap balance transfer fees — to no more than, say, $50 or $75,” Randel says. “Those caps are going away.”

The fee increases and lack of caps can hit consumers’ wallets hard. For example, a 5 percent fee on a $10,000 balance transfer would be $500. It is possible to find better deals, but it takes work.

Credit card balance transfers

Small business owner Ken Kilpatrick, who lives near Philadelphia, made many phone calls last month to find a transfer deal for his $10,000 balance. He finally opened a Discover card at 0 percent interest for a year, with a fee capped at $99. "There are still deals, but you've really got to look for them," Kilpatrick says. "First, the customer service reps will tell you about what deals they're promoting right now, but if it's not what you want, you just have to keep asking questions."

Here are some steps to take if you're looking for a balance transfer deal:

1. Go to online forums and get feedback from customers of the issuer you're considering. "Do a little homework on the company. Check and see how they treat their customers," Randel says. "Because once you've switched, you can't just switch back. Your old issuer may or may not take that debt back."

2. Read the fine print to make sure you're getting the deal you think you're getting. Some card issuers now advertise a certain introductory period -- say, a year -- and introductory interest rate -- say, 0 percent -- but the fine print specifies other periods and rates for those with less-than-stellar credit. "The best investment consumers can make is in a magnifying glass -- take that and read the fine print," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

3. Pay attention to the APR on purchases, not just to balance transfer terms. Until the new federal rules kick in, in February 2010, any new purchases at a higher interest rate probably will be buried under your lower-rate transferred balance. "You need to know, 'OK, if I charge a pair of shoes on that card, what's the rate?'" Randel says. "Because if you have a $2,000, 0 percent balance transfer, and you charge a new pair of shoes for $50 at 15.9 percent, the last thing that's going to get paid is those shoes."

4. Consider keeping your old card open if you do transfer a balance to a new credit card -- unless you'd be tempted to rack up a new balance on it. "If you leave the old card open, it can be a temptation to add little charges here and there, and before you know it, you've run up your debt again," Cunningham says.

5. Don't assume that interest rates or other terms will not be changed by the issuer in the future. For example, Chase recently increased minimum payments for some customers by 150 percent -- and many of those affected had low-interest deals for the life of a balance transfer. (See4 ways to fight minimum payment increases.) That might trip up some customers who can't afford the new, higher payment, possibly causing them to be late or miss a payment and, in turn, causing that low interest rate to skyrocket. "During that 12 months, or whatever the introductory period is, the issuer typically cannot change the interest rate or minimum payment," Randel says. "After that, they can do whatever they want -- and worse, if you miss a payment, the game is off."

Here is a list of some of the most popular balance transfer credit cards and their requirements:

Balance transfer credit cardIntroductory APR for balance transfersIntroductory period lengthIntroductory balance transfer feeAPR for transferred balance after intro periodAPR for purchases
Bank of America Platinum Plus Visa0%7 billing cycles3% per transaction, minimum $1010.24% to 16.24% variable10.24% to 16.24%, variable
Capital One Platinum0%12 months3% per transaction14.9% variable0% for 12 months, then 14.9% variable
Capital One Platinum Prestige0%12 months 3% per transaction11.9% variable0% for 12 months, then 11.9% variable
Chase Disney Rewards Visa0%6 billing cycles3% per transaction; minimum of $513.24% or 16.24% variable0% for first 6 months, then 13.24% or 16.24% variable
Citi Diamond Preferred Rewards0%6 or 12 months from date of first balance transfer, depending on credit score and payment history3% per transaction, minimum $511.99%, 15.99% or 19.99% variable11.99%, 15.99% or 19.99% variable
Citi Platinum Select MasterCard0%6, 9 or 12 months, depending on credit score and payment history3% per transaction, minimum $510.99%, 14.99% or 18.99% variable10.99%, 14.99% or 18.99% variable
Discover More Card0% or 3.99%, 9 or 6 billing cycles, depending on credit score and payment history3% per transaction10.99% to 18.99% variable0% or 3.99% until January 2010, then between 10.99% and 18.99% variable
U.S. Bank Visa Platinum0%12 billing cycles, only for balances transferred at the time of online application3% per transaction, minimum $59.99% to 22.99% variable9.99% to 22.99% variable
Wells Fargo Platinum0% or 5.9%9 or 6 billing cycles, depending on credit score and payment history3% per transaction, minimum $5, cap of $99 per transfer made in the first 30 days 8.65% to 22.65%0% or 5.9% for the first 6 or 9 billing cycles, then 8.65% to 22.65%

Chart updated Sept. 15, 2009. To report updates, e-mail Editors@CreditCards.com

See related:4 ways to fight minimum payment increases, Credit card video: Balance transfers and your credit, Credit card balance transfers: The landscape is changing, 9 things you should know about balance transfers

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