Thursday, February 25, 2010

The credit market must be picking up again

There are some signs now that the credit (or at least credit card) market is starting to wake up from a long slumber.  Credit card balance transfer offers (circa earlier last decade) are stopping to pop up again in my inbox and mail box just like the good old days.  But as always, must be read carefully.

The fundamental changes I have seen with these balance transfer offers, from both my bank, and credit card companies, are two-fold: 1) the fees are higher, meaning no more "free" transfers like I have seen in the past; 2) quick turn around requirements.  From what seems like ages ago, I used to get offers all of the time to consolidate balances at 0% interest for 10 months or so.  Occasionally, they would be "no fee" transfers, meaning all one had to was send the check in and pay off another balance.  If used properly, one can essentially beat the system for a while.  Of course, if one forgot to pay the minimum balance one month, or went past the "teaser" period to pay it off, one would be subject to huge interest rate increases. 

Now, not only do the offers have a minimum transfer cost, say 4% of the balance requested, there are no maximums on the fees assessed, unlike before.  In the past, it seemed that balance transfer fees were capped at $75, now, the sky is the limit.  That of course depends on your credit card limit in terms of how much you can borrow, too.  Thus, if you look at the interest rate being offered, if you are lucky, 0, but more like 3.99%, if paid off within the terms of the loan, and not added to, the rate is about 8%.  If not paid off, 8% is the floor and the ceiling is in the double digits.

There seems to be a pressure component now, too, with offer turn around requirements of a month or less.  It seems that credit card companies want to make consumers act (hopefully responsibly) as soon as possible.  I don't like that kind of pressure, and it's what has gotten a lot of people in trouble in the past.

In a pinch, and used responsibly, these offers are a great way to consolidate balances.  If you think about it, if you are paying 15% or more on a credit card balance, and if you know you cannot pay it in full for a while, it might make sense to pay the balance transfer fee and get the lower rate.  But, try to project out when you are going to be able to pay off the balance.  And, try not to run up the balance on the higher rate credit card while paying off the lower one.

While it's better not to get into debt, if avoidable, there are tools available to consumers again that can be used to help manage their debt better.