The Skinny on No-Fee Balance Transfer Credit Cards

These cards offer an easy way to reduce your interest expense, but beware of issuers bearing gifts.

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During the 19th century, bars would offer a free lunch to patrons as a way to lure in drinking customers. So what started out as free food, ended up as an expensive bar tab. From this arose the familiar saying, “there’s no such thing as a free lunch.” In other words, you’ll never get something for nothing. The free balance transfer credit card offer, however, may just upend this adage.

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A bit more history is in order. Before the credit crunch a few years ago, a number of credit card issuers offered no fee balance transfers. These offers allowed you to transfer high-interest credit card debt from an existing card to the new card and pay no interest (typically for 12 months, after which the regular APR would kick in for any unpaid balance).

When credit dried up, however, these offers went away. Banks started charging transfer fees of as much as 6 percent of the amount transferred. In addition, many of the banks shortened the period during which the balance would enjoy zero percent interest. In fact, some offers were for as little as a few months. While some of these offers were still reasonable, the “free lunch” was over.

Well, belly up to the bar because the free lunch is back. Chase has just launched a 12-month 0% balance transfer card with no fee. While other card issuers may follow suit, Chase is currently the only bank to have a free balance transfer option.

[See Borrowing From the Family Bank.]

A no fee balance transfer card offers several advantages. First, it’s an easy way to reduce your interest expense. With no balance transfer fee tacked on to the account, consumers get a truly interest-free loan for one year. Second, because there are no interest payments, 100 percent of each monthly payment goes to the balance, helping consumers pay down their debt faster.

Still, you should beware credit card issuers bearing gifts. While there are no hidden fees associated with this newest offer, it’s still a credit card. Perhaps the biggest risk with balance transfers is that consumers will transfer an existing balance to a new card, and then max out the old card again. Unable to pay off either card in 12 months, consumers are then left paying interest on the transferred balance once the zero percecnt introductory offer expires.

Maybe credit card issuers today have been studying saloons of the 19th century.

DR is the founder of the popular personal finance blog, the Dough Roller, and author of 99 Painless Ways to Save Money.