How Free Balance Transfer Fee Credit Cards can help Pay off Debt

Where have all the…free balance transfer credit cards gone? 

Such was the tune being sung by indebted consumers following the Credit CARD Act taking effect in February 2010.  While this piece of personal finance reform legislation did eliminate many of the bait-and-switch, predatory tactics employed by unscrupulous credit card companies prior to the Great Recession, in doing so, it killed the profitability of credit cards offering 0% introductory rates on purchases and balance transfers without charging expensive balance transfer fees. 

But hold on, do you hear that?  That’s right, the singing has stopped.

Much to the delight of indebted consumers with excellent credit everywhere, no cost balance transfer credit cards recently made their triumphant return.  And while continued questions of profitability foretell a short stay – Discover’s offer was pulled from the online market just a couple of months after being introduced – consumers able to get their hands on a card like the No Balance Transfer Fee Slate Card from Chase are clearly in for a treat.

The Slate Card has the potential to both save consumers hundreds of dollars in interest over the course of its 15-month 0% APR introductory term as well as expedite debt freedom.  For example, someone with $3,500 in credit card debt and a 12% interest rate could save nearly $300 and be completely debt free if they open this card and make monthly payments of around $250.

It’s important to note, however, that getting this card neither ensures savings nor prevents future overleveraging.  The best ways to avoid these pitfalls are to employ:

A credit card calculator:  A credit card payoff calculator can not only tell you the monthly payments needed to pay off your balance within 15 months, but if that’s not possible, it can also help you determine the cost of paying down the debt that will remain when high regular rates take effect.

The Island Approach:  As you are working to pay down your credit card debt, it’s important that you use a separate credit card for making new purchases.  The purpose of segmenting everyday expenses from revolving debt (as if they are stranded on distinct islands) is to gain a better perspective on your spending.  Since living within your means does not entail having to leverage debt in order to afford everyday expenses, the presence of finance charges on your everyday expense card’s statement will clearly indicate the need for adjustments.  This natural warning system will, of course, help prevent future overleveraging.

The habit of paying your bills in full is one that will provide benefit for the rest of your life.  Too often, we simply cut back for a little while before making the same mistakes all over again down the road.  For example, under the pressure of the Great Recession, we curtailed spending and started to chip away at amounts owed.  Once confidence in the economy began to grow, however, the debt started piling back up at an amazing rate.  The $48 billion in new credit card debt that we incurred during 2011, according to Card Hub’s 2011 Card Debt Study, was 577 percent more than was added in 2009 and 424 percent more than in 2010.

Anyway, what better time is there to start cutting into what we owe and setting ourselves up for future financial responsibility than on the heels of April 2012, or what President Obama has dubbed Financial Capability Month?