If we use them, they make money on the transfer fees ranging from 1% to 5%. If we don't pay off the balance and let it remain in the account after the promotion expires, the interest rate jumps to 15% or higher. In that situation, they are the big winners. I always tell myself that banks and credit card companies are not here to help us. They are here to make big bucks.
From my personal experience and observation, here's how I rate the offers. These are not the initial offers when we apply for the cards, but rather, these are the checks we get in the mails after we've become cardholders for some time.
- Barclay seems to be the best in terms of the fees and the length of the promotional period. I usually get the fees of 1% for 15 months.
- Chase comes in second. 2% fees for 12 months.
- Discover: 3% for 12 months.
- Bank of America: 4% for 15 months. I think I've gotten a 3% offer only once for the past 7 years.
- Citi: The worst. 5% for 12 months. Once in a while, when your stars are all lined up correctly, you might get a 3% offer. When I get the mails from Citi, I don't even bother any more. They go directly to the shredder.
Apparently, the biggest benefit for writing that balance transfer check is when we have a large balance that we need time to pay it off. Let's say I use the Barclay's check with the 1% fee for 15 months. On a $3,000 balance, the total balance appearing on the card account is $3,030. I want to make sure I pay it off before the promotional rate expires, so my monthly payment will be $216.43. I always subtract 1 month from the promotional period so I know the credit card companies don't have any excuse to impose any fee or interest on me. In this case, the promotion is for 15 months. 15 minus 1 is 14. $3,030 divided by 14 comes out to $216.43. A $30 fee over 15 months is a good deal. That is just $2 a month. We can't even get a Starbucks latte for $2.
Remember, the important part of this game is stick to our goal, which is to pay the entire balance off before the promotion is over.
Now, here comes the cons.
Con Number 1: If somehow, you cannot do so and begin to play the game by transferring the balance from one card to another, or you simply let the balance default back to the credit card regular purchase interest rate, which is typically 15% or higher, this is a big problem.
Con Number 2: The balance we transfer by writing those checks does not earn any reward point, airline mileage, or cash back. Nothing. What I do is I keep 2 of my favorite cards for daily use. I always earn the airline miles and hotel points on those 2 cards. I transfer the balances to one of the cards I normally don't use.
The credit card balance transfer checks can certainly help us save money on the interests, but they require us to do some serious thinking, budgeting, and planning; otherwise, if we use them without caution, we may not get the full benefits at all and end up in some serious financial troubles.