Credit card balance transfer fees move higher
July 5, 2009 by admin
Credit card companies are fighting back; increasing fees they charge consumers who transfer existing balances amongst their credit cards. The credit card industry proclaimed they would be dramatically impaired when the government pushed through sweeping card reforms earlier this year in a long awaited effort by consumer advocate groups. The potential of losing revenue, as a result of the new government regulations has not lasted long as credit card companies are looking to alternatives to recoup their lost revenues from consumers.
Millions of consumers have benefited over the years by transferring a high rate credit card balance to an alternative credit card that offered a lower balance. The financial incentive of lowering the interest on the balance, could be mathematically justified, even factoring in a one time balance transfer fee charged by the new balance carrier. The one time fees often started at one percent of the balance and moved to three percent for most card issuers. Today, a number of the nations largest card carriers are now charging up to five percent of the card balance as a one time fee. This latest increase in the one time balance transfer fee, could make the allure of transferring over an existing balance less appealing. Consider the math on a balance of 10,000 transferred between lenders:
• One time fee = $ 500 upfront
• In order to recoup the one time $500 fee, a consumer would need to be offered a lower interest rate by a minimum of six percent or more (assuming your new balance is decreasing each month), guaranteed for a minimum of twelve months.
• Card issuers often also have a minimum fee, so be sure to read any fine print when considering a balance transfer.
Consumers have been able to take advantage of the competitiveness of the credit card industry over the past decade. Many banks and credit card companies would offer great incentives to try and attract new customers, including zero percent balance transfer options for periods of one year or longer with no fees or upfront charges for qualified customers. Consumers who have a large balance on an existing credit card may still benefit from transferring this balance to another card or pursuing a signature loan with a credit union or local bank. Consumers who are looking to transfer a card balance, may want to shop for a new card versus transferring the balance to an existing card in their portfolio. Many credit card companies are still offering new customers better incentives than are available to their existing customers, taking advantage of this loophole in their business plan may allow you to transfer a credit card balance transfer at an attractive rate with reduced fees through a promotion for new customers.
Credit card companies are likely to continue to raise their rates and fees as they are struggling with higher delinquency rates as consumers struggle to remain afloat in the tough economic challenges this year. The most important thing a consumer can do is keep their credit score as high as possible and read all of the fine print and documentation prior to pursuing a balance transfer of their credit card balances, when in doubt it would not hurt to use free online calculators to run through a few math scenarios to make certain that a card transfer is a mathematically sound decision.