If you’re wondering why credit card issuers offer tantalizing balance transfer offers, wonder no longer.
A new study from British market research company Consumer Intelligence found that more than a third (34%) of cardholders don’t pay off their debt during the promotional 0% APR period.
Worse yet, the average consumer had £2,400 ($3,935) of debt remaining on the card after the promotional period ended.
Amazingly, this was the case despite 0% APR periods extending as long as 30 months in the United Kingdom.
Here in the U.S., the longest 0% APR credit cards extend just 18 months, perhaps because banks got spooked after the recent financial crisis.
In the past, the longest I had seen was 24 months, and I wouldn’t be surprised if such offers popped up again in the near future if competition warrants it.
One In Five Lost Their Promotional Rate
Here’s more bad news on the balance transfer front. One in five consumers that transferred a balance eventually lost the promotional rate because they were late or missed a payment entirely.
Yes, if you actually take the time to read the fine print, you’ll notice that card issuers can raise your APR to the default rate if you don’t hold up your end of the bargain.
So it is especially important to make on-time payments when carrying a lot of debt.
For the record, the default rate is typically higher than the standard purchase rate, so it’s a double whammy if you blow your balance transfer.
Here’s a Balance Transfer Strategy to Use
If you’ve got a lot of debt, so much that you don’t think you’ll be able to pay it all off during the promotional period, go with the Chase Slate No Fee Balance Transfer offer first.
Assuming you get approved, pay off as much of the debt as possible during the 0% APR period, which is currently 15 months.
A few weeks before the promo period ends, you can apply for a new balance transfer credit card and move the remaining debt to the new card.
Sure, you’ll pay a balance transfer fee, but it’s a percentage of the debt, and if you’ve got a significantly smaller balance after 15 months, the fee will be much less.
For example, a 3% balance transfer fee on $5,000 is $150, while a 3% fee on $1,000 is just $30. Those savings are nothing to sneeze at.
By the way, it is not mandatory to pay off your entire credit card balance during the promotional period. It’s just wise to do it, as the promotional APR typically jumps to the purchase APR, which on most credit cards is in the teens or higher. This is exactly why credit card issuers offer them in the first place!