It was the great deal you were never supposed to see again: credit cards with a zero percent introductory interest rate and no transfer fee, unlike the 2 to 3 percent typically charged by card issuers. Credit-card legislation in 2009, known as the CARD Act, had outlawed so many of the industry's profitable but anticonsumer practices that issuers weren't supposed to be able to afford offering truly zero percent loans anymore.
Nevertheless, these deals are making a comeback, at least for now. The benefit to consumers is undeniable.
Take the No Balance Transfer Fee Slate Card from Chase. It’s currently the best free balance transfer credit card on the market, thanks to a 15-month, zero-percent introductory interest rate with no transfer fee. If you have roughly $6,500 in credit card debt and are paying a 15 percent annual percentage rate (APR), as the average cardholder did at the end of 2011, you would save around $950 in interest by transferring your debt to this card and paying it down before the regular APR kicks in.
A standard zero-percent balance-transfer card would shave off nearly $200 of those savings because of the balance transfer fee.
Of course, paying down that much debt that quickly is not feasible for everyone. Before transferring a balance to any card with a low introductory interest rate, you should use a credit card calculator to determine whether you can afford to pay off the debt before high regular rates kick in.
In and of itself, a free balance transfer credit card won't solve debt problems. All it can do is lessen interest charges temporarily. The real keys to becoming debt free are lifestyle changes and a fresh perspective on everyday spending. To put it bluntly: You need to cut out the expenditures you can't afford.
One way to do this is to rank your expenses in order, and cut those lower-priority items that exceed your budget. By designating one credit card for everyday spending and requesting that your issuer lower the credit line to your budgeted monthly spending limit, it will be more difficult to go back into debt. If your card ever gets declined before month’s end or you see any finance charges creeping onto your monthly statement, you’ll know your spending is getting out of hand.
Will the new zero-fee, zero-interest credit-card offers last? It's hard to say. The 2009 CARD Act has crimped their profitability.
There is no question we’re better off without the bait-and-switch marketing tactics, undeserved interest rate increases, and obscene penalty fees that were frequent practices before the CARD Act outlawed them.
Even if the zero-free, zero-interest offers aren’t sustainable for issuers in the long run, they are here now and can save many consumers some serious money.
– Odysseas Papadimitriou is chief executive officer of Card Hub, a website that helps consumers find the best credit card offers.