As Credit Card Debt Increases, Nearly 80% of Americans Don’t Understand Balance Transfer Benefits

Credit card debt is climbing in America again, and a new report from LendingTree hints that a stubborn myth about credit cards may be preventing people from using one of the most powerful debt-fighting tools available to them.

That tool is a 0% balance transfer credit card.

The myth is that if you don’t pay the transferred balance off in full before the 0% introductory period ends on that card, you’ll get hit with a bill for all the interest that you would have accrued on that balance going all the way back to the transfer date.

It is simply not true. That is not a typical feature of 0% balance transfer credit cards. Only any remaining balance left after the intro period expires will be subject to the ongoing APR.

The problem is that nearly 80% of American credit cardholders believe that myth, according to new survey data from LendingTree, and that misconception is likely costing millions of Americans a lot of money.

Key findings

• More cardholders are in credit card debt than in the beginning of 2021. Currently 56% of cardholders are in debt, up from 50% in spring 2021. And 42% of those with card debt say they owe on more than one card.
• Nearly 8 in 10 cardholders still don’t understand the key balance transfer benefit. 79% think they’d be billed for interest retroactively should they not pay off their card’s entire balance during the reduced-interest introductory period, which is not true.
• More cardholders are fully paying their transferred balances off in the introductory period. Of those who said they conducted a balance transfer, 61% paid off the entire balance during the reduced-interest rate period, up from 54% in 2019. Men, baby boomers and Gen Xers are best at doing so.
• 15 months was the most common intro period length for bank-issued balance transfer credit cards. 42 bank cards offered that, while 18 bank cards offered 18 months or more. (The most common intro balance transfer period among credit union cards is 12 months.)
• Balance transfer fees and “use it or lose it” deadlines are common with 0% balance transfer cards, but annual fees are not. A 3% balance transfer fee and a 60-day deadline to do the transfer were most commonly seen with these offers.

More cardholders are in credit card debt than in the beginning of 2021

In the early days of the pandemic, credit card debt fell in a big way. Americans spent much of 2020 paying down their card balances with the extra cash they had from economic impact payments.

Things have changed, though.

Our survey revealed that 56% of credit cardholders currently have credit card debt, a six-percentage-point increase from December 2019, which was the last time this survey was conducted.

Government data also makes it clear that debt is growing again. The Federal Reserve Bank of New York’s Quarterly Household Debt and Credit Report shows that card debt has grown in back-to-back quarters, rising from $770 billion in the first quarter of 2021 to $804 billion in the third quarter of 2021. We will likely see continued growth when updated data is released next month.

For many Americans, that debt isn’t limited to a single card. More than 4 in 10 cardholders (42%) have debt on more than one card. The older you are, the more likely you are to have debt on multiple cards, with 54% of baby boomers saying so versus just 22% of Gen Z.

Nearly 80% of cardholders still don’t understand the key balance transfer benefit

For those folks struggling with card debt, a 0% balance transfer credit card can be a godsend, though you typically need to have good credit to get one. That likely means a FICO Score of 670 or higher, but different lenders can have different standards.

These cards allow you to move a balance from a high-interest-rate card to a card with an APR of 0% for a limited time, often 15 months or longer. There are typically fees, deadlines, limits and other details that come along with the offer (more on these terms later in this report), but the ability to avoid accruing interest for a year or longer on your balance can help cardholders pay down their debt more quickly.

The cards can be especially useful for those with debt on multiple cards because you can transfer balances from several cards onto one, reducing the total number of bills you need to keep track of each month.

Many cardholders clearly see the benefit of these cards. About 1 in 4 cardholders said they opened a balance transfer card in the past year, and nearly half (44%) said they are considering doing so in 2022.

However, it is also clear that many cardholders are still confused about how they actually work.

For example, 79% believe that 0% balance transfer cards are actually deferred interest deals, in which you’ll get billed retroactively if you don’t pay the transferred balance in full during the low-interest introductory period.

Again, that’s not how balance transfer cards work. Deferred interest deals are common with store credit cards and so-called special financing deals from retailers. They are typically not part of a balance-transfer offer.

The confusion is troubling because it almost certainly is preventing some folks who could really benefit from these cards from applying for them. After all, that 0% offer looks a whole lot less appealing if it includes deferred interest.

More cardholders are paying their transferred balances off in the introductory period

Despite the confusion, we saw a seven-percentage-point increase in the number of cardholders who paid their entire balance during the reduced-interest period. In 2019, 54% did so. That number grew to 61% in this report. Another 17% said they paid off about 75% of the transferred balance during that time.

Once the introductory period ends, any remaining balance will typically be subject to the credit card’s standard purchase APR, which can often be 20% or higher.

Men were more likely than women (64% to 58%) to say they paid the balance off during the intro period. Also, the higher your income and the older you are, the more likely you are to have paid off the entire transferred balance during the intro period.

However, about 11% of Gen Xers said they only paid about 25% of their balance off during the introductory period.

How long do those introductory periods last?

So how long do those introductory periods last? The median length for all the cards reviewed was 12 months.

Bank cards tend to have longer balance transfer introductory periods than credit union cards. The most common duration for a bank card’s introductory period is 15 months, compared to just 12 months for credit unions.

The longest we found was 21 months, while the shortest was just six months.

One important thing to understand: These introductory periods can be revoked. For example, if you are significantly late with a payment during your 0% interest period, the issuer can raise your rate.

Fees and deadlines are common, but annual fees are not

When shopping for a balance transfer credit card, it is important to look beyond just the 0% rate and how long it lasts. Two 0% cards with the same introductory-period length can still be quite different. For example,

• Balance transfer fee: Most, though definitely not all, 0% balance transfer cards come with a balance transfer fee, which is added to the transferred balance. The most common is 3%, though some go as high as 5%. On a $5,000 balance transfer, 3% equals $150 and 5% equals $250. That’s a significant difference. These fees are rarely capped, but many do come with minimums. For example, it is common for a bank to say the fee can’t be less than $5 or $10. (Note: There were no reviewed bank-issued cards that both offered an introductory BT offer and never charged an annual fee – Only eight cards we reviewed — all issued by credit unions — came with an introductory balance transfer offer and never charged a balance transfer fee. )
• “Use it or lose it” deadlines: Nearly three out of every four introductory offers require you to transfer your balance within a specific timeframe to get the lowest rate. The most common deadline is 60 days, though the second-most-common was 45 days. The longest? Six months. Make sure you know the deadline. The last thing you want is to get a balance transfer card and not be able to take advantage of the 0% offer.
• Annual fees: They’re not common. Of the 188 cards LendingTree reviewed that accept balance transfers, only 49 charged an annual fee — and 10 of those cards waived the fee the first year. The median annual fee among those that charged one was $95.
• Balance transfer amount limits and restrictions: The amount that you can transfer typically cannot exceed the overall credit limit for the card. However, some issuers restrict the amount you can transfer even further. Also, you generally cannot transfer balances between cards from the same card issuer.
• 0% purchase APR periods: Many balance transfer cards also include 0% offers for purchases for a limited time, often the same window as the 0% balance transfer introductory period. However, that is not always the case.

The bottom line: Used wisely, balance transfer cards can really help

It may seem counterintuitive to try to solve your credit card debt problem by getting a new credit card, but when that card is a 0% balance transfer card, it can help you pay off that debt faster.

For example, if you have $5,000 in card debt on a card with a 20% APR and you pay $250 per month, you’ll pay $1,133 in interest and it will take 25 months to pay the balance off.

But, if you could avoid interest for 20 months with a 0% balance transfer credit card and make the same monthly payments, you could pay off that entire balance and save over $1,000 in interest charges. (20 payments X $250 = $5,000). All it would likely cost you is a one-time fee of $150 to $250, depending on the card. That’s a heck of a savings.

Again, balance transfer card offers vary widely, so it is vital to comparison shop to make sure you’ve picked the one that suits you best. And of course, once you’ve gotten the card, you need to make payments on time every time and make sure that you don’t just see it as an excuse to go spending and dig yourself a bigger debt hole.

Do that and the card can save you hundreds of dollars in interest and dramatically shorten your payoff time. That’s music to the ears of folks struggling with debt.

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Methodology

LendingTree commissioned Qualtrics to conduct an online survey of 1,632 credit cardholders from Dec. 14-20, 2021. The survey was administered using a nonprobability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.

We defined generations as the following ages in 2021:

• Generation Z: 18 to 24
• Millennial: 25 to 40
• Generation X: 41 to 55
• Baby boomer: 56 to 75

While the survey also included consumers from the silent generation (those 76 and older), the sample size was too small to include findings related to that group in the generational breakdowns.

LendingTree also reviewed credit card offers for 188 credit cards that allow balance transfers. Cards from more than 40 different issuers — including banks and credit unions — were included. We reviewed basic terms and conditions, including APRs and annual fees, as well as evaluating the cards’ balance transfer programs. All offers were reviewed online on financial institutions’ public websites. Credit card offer data is accurate as of Jan. 10, 2022.