Lately, you may have noticed an added incentive to sign up for new credit cards: no-interest balance transfers.
With these transfers, credit card companies allow new customers to transfer any existing balances onto their new cards—without paying interest on that balance for a set amount of time after the transfer. The idea itself, of course, is nothing new—“0% balance transfers” have been around since the late 1990s.
Not only is the deal now being extended to longer-than-ever terms (in some cases, up to two years), but the promotions are also being offered to a larger pool of potential applicants. And some of the largest credit-card issuers—like Citigroup, Discover and J.P. Morgan Chase—are joining in.
The advantage for consumers is clear, but what’s in it for the companies? Well, for one, it’s a quick way to encourage new users to sign up—a huge incentive as credit-card issuers try to bolster their numbers after the recession. (The portion of consumer debt held by credit cards is now at its lowest level since 1990—just 29.68%) Plus, the promotions typically allow the companies to gather a 3% one-time fee when transferring the balance.
But it’s not a risk-free move for companies. For one, there’s no guarantee that customers will actually use the new plastic for future purchases—but the company will still have to bear the cost of maintaining the account. And many users will strategically pay off the balance just before the offer expires, leaving companies with little revenue from the deal.
It’s not necessarily a win-win for customers, either. Some experts say that the allure of zero interest can give consumers a false sense of security and incite them to rack up even more charges on the new card.
The deal can definitely be tempting, but it’s not for everyone: If you plan to take advantage of a zero-interest balance transfer, make sure it’s helping you actually pay down any debt—not further it.