The novel coronavirus The pandemic has caused a massive change in the economy and financial institutions have responded. Interest rates are falling, businesses and government programs are offering COVID-19 financial assistance, and even credit card relief is on the table.
Many of these changes are a lifeline for Americans who have lost income. However, one change might not be welcome, especially for those paying off debt: Credit card companies appear to be cutting back on balance transfer offers.
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Long-term balance transfer offers are getting harder to find
In the first few months of the pandemic, several major banks began to cut back on balance transfer cards. JPMorgan Chase, for example, removed the introductory 0% APR on balance transfers from a few of its most popular credit card, and American Express has completely stopped offering balance transfers.
Other credit card issuers have shortened the introductory period of their balance transfer credit cards. For example, the introductory 0% APR offer on two of Citi’s most popular balance transfer cards has gone from 21 to just 18 months.
Why banks are more conservative with introductory 0% APR offers
Times have been tough for everyone this year, but removing balance transfer offers doesn’t necessarily mean banks are hurting financially. Most likely, this is because they fear that it is risky to extend these kinds of offers to consumers in our current financial climate.
During the 2008 financial crisis, banks drastically reduced credit limits and ended 0% introductory APR offers in order to control risk. Hours of financial crisis and high unemployment rates go hand in hand with delinquencies on credit cards and loans. And the fear is that consumers will accumulate balances they cannot pay.
If a person is financially desperate, they can use a 0% balance transfer offer to free up credit on an existing card and then restore a balance. During this time, the balance transfer card will not earn interest, at least for now.
Unfortunately, this is an extremely risky operation. What this person is counting on is that their income will increase over time to pay off the balance before the end of the card launch period. They also accumulate additional debt and spread it across multiple accounts. In these situations, it is easy to falling behind on credit card paymentsespecially after the introductory period ends and the interest rate goes back to the regular APR. Not only can this lead to late payment fees, it can also hurt your credit score.
You can still take advantage of balance transfers to pay off your debts, as long as you are careful
Banks may be withdrawing balance transfer offers, but they are far from gone. There are still credit cards that offer an introductory 0% APR on balance transfers for up to 18 months, giving you a year and a half to pay off the balance.
Balance transfers can be a very effective way to quickly pay off debt and save money on interest. Here’s how it works: Let’s say you are paying off $ 5,000 in credit card debt at 18% APR and making monthly payments of $ 300. It will take you 20 months to pay off your balance and you will end up spending almost $ 800 in interest. If you take advantage of any of the best balance transfer credit cards, you will have paid off this balance two months earlier and you will save approximately $ 650, which is a 3% balance transfer fee.
It is important to carefully consider these offers. You want to be sure that you can pay off the balance in full before the card launch period ends. Make sure you calculate how much you can afford to pay each month before transfer a balance, and take into account that you could lose income during this time.
If you use it wisely, a balance transfer credit card can speed you up pay off your debts. Take advantage of extended balance transfer offers now while they are still available.