Balance Transfer Day Could Be Boon For Banks, Bust For Customers

In an attempt to ride the recent wave of antibank sentiment fomented by November's Bank Transfer Day, a 35-year-old freelancer from Brooklyn, New York, is encouraging people to transfer their credit card balances.

Michael Germanovsky, creator of the Balance Transfer Day Facebook page, is calling for consumers to apply en masse for low-interest credit cards on December 11. Germanovsky's goal, he says, is to send a message to big banks about high-interest rates.

But that message could get muddled, and balance transfer day may actually help fatten banks' bottom lines.

"People are not given a chance to get a handle on [debt]. For big banks, the whole system is based on a simple idea to lure new customers and create more debt," said Germanovsky. "Balance transfer allows you to get away from high interest."

The problem is that not everyone can get a lower-rate on their credit cards. Many of the current zero-interest offers are aimed at customers who already have high credit scores.

"Good luck. You better be sporting some killer FICO scores if you think you're getting those [zero-percent] offers," said John Ulzheimer, president of consumer education at Smartcredit.com, a consumer credit management resource.

Anyone with a FICO score lower than 700 is unlikely to qualify for these promotional deals, Curtis Arnold, a credit card expert for CardRatings.com, a consumer credit information website, told HuffPost sibling site Daily Finance earlier this month.

Worse, those who apply for a low-rate card and are denied could actually wind up hurting their credit rating, said Ken Lin, CEO of CreditKarma.com, a credit-score service.

Germanovsky said the gains made by the message balance transfer day sends to banks and by successfully lowering interest rates by even a few percentage points offset any dip in a credit score, which he said would be minimal.

For those who do qualify, low-interest rates on credit cards and other types of loans are there for the taking. Banks have been ratcheting up offers on cards over the last few months with fierce competition driving longer promotional terms, including Citi's Simplicity Card that offers 0 percent for as long as 21 months to qualified customers.

The promotions are a way to bring in new customers, and make an immediate profit on balance transfer fees (typically between 3 percent and 5 percent of the total balance.) So balance transfer day could be a boon for banks.

When asked whether he'd transfer a balance, movement founder Germanovsky, who was laid off from his job as an architect in 2008, conceded that he carries $5,000 on his Discover card, paying 15 percent interest. He hasn't yet applied for a new card.

"I'll do it on December 11 with everyone else," he said.

CORRECTION:An earlier version of this report misspelled Michael Germanovsky's name. It's Germanovsky, not Germanovski.

Comments

[LivingDebtFree]

05:51 PM on 12/04/2011

http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff

[Ed Baker]

02:11 PM on 12/05/2011

I love that clip!

[TrutherUSA]

07:08 PM on 12/03/2011

No need to switch credit cards unless you have switched from big banks to local banks or credit unions. I am cancelling my zero balance cards and using my credit union card now but this is the final act of transition. Focus first on just dumping the big banks for checking and savings.

[Ed Baker]

02:12 PM on 12/05/2011

If you close your credit card accounts, you will lower your credit score and increase the cost of credit to yourself when you need it.

[Mister Grumpy]

02:33 AM on 12/03/2011

People need to remember that banks only lend money to those that don't really need it.

[webwzrd]

04:29 PM on 12/03/2011

I think I need to fan you. You consistently make good comments.

[progressivestance84]

08:35 PM on 12/02/2011

I support OWS, but this protest is stupid. Debt makes one a slaver to the debt holder. Only charge what you can pay off at the end of the month with actual money.

If you are in debt, pay off the card as quickly as possible.

[Karma2U]

03:33 PM on 12/02/2011

Unfortunately, the only way many of us 99% s can get out from under, is if we had the same bankruptcy rights as Trump. Does anyone out there know how the Donald gets away with this?

I can't figure it out.

[Mister Grumpy]

02:37 AM on 12/03/2011

If you want to be like Donald Trump, you need to incorporate. That's how he does it. His corporation owns everything but his underwear.

[webwzrd]

04:30 PM on 12/03/2011

Corporations are people too right? Except with no legal or moral responsability.

[iskra]

12:46 PM on 12/02/2011

Balance transfers CAN work in your favor, they can also work against you. 

First, always remember that when you make a payment on a card it goes to the balance transfer (at the low intro rate) NOT to your purchase balance (at a higher rate). In other words: You can't pay off your purchases until you've completely paid the balance transfer. How to avoid trapped balances: Open a NEW card for the balance transfer and NEVER use that card for a purchase. 

Second: Do your math. If you are paying 12% and have an offer for zero percent read carefully. 6 months at zero then a jump to 18% is NOT going to save you anything.

Third: Be wary of fees. Do not take a balance transfer that has a fee attached to it (often as much as 3%). Look carefully at the offers and make sure you pick the best intro rate/goto rate combo with no fee. 

Fourth: Negotiate. Don't accept the first offer and only do it on the phone. Sound interested right up until they ask you to sign up then waffle. Tell them you have a better offer with another bank with no fee and a better rate. Most banks allow some negotiation but only when you press them. 

Last: If you have a revolving balance you need to stop using your cards and live a cash existence as you chip away at your balances. Getting them down may be one of the biggest monthly savings you can do.

[Karma2U]

03:35 PM on 12/02/2011

Dear iskra, thank you for this useful information.

[william 123]

12:08 PM on 12/02/2011

You can't trick the tricksters. They are like the loan sharks that used to lend in my old neighborhood. They'll always stay a step ahead of you. If you have to have a credit card, pay off the balance every month. If you can't do that, fight politically, for the return of ceilings on usurious rates. There was a time, before politicians were bought up by the banksters, when states had such. It'll be tough but not impossible. Credit cards, today, are one of the major arrows in the quiver of the wielders of WME's. (Weapons of Mass Exploitation). Fight back or, like lambs, you'll continue to be fleeced of what little wool you have left.

[redraspberry]

10:24 AM on 12/03/2011

I've been using 0% interest credit cards for the last 15 years. I bet I haven't paid out $100 in interest on CCs in that period. Yes I have a good FICO rating.

[The Patriot]

11:05 AM on 12/02/2011

"Balance Transfer Day Could Be Boon For Banks"
yeah.
and "Getting Hit in the Face with a Hammer" is good for your looks.
what rubbish.

[johnsonc20]

10:56 AM on 12/02/2011

If this guy has a good credit rating and is paying 15% on a credit card he is clearly an id1ot.

[CitizenPane]

11:54 AM on 12/02/2011

clearly.. Should people get behind him seeing that he is such a crackerjack negotiator with his own credit card rates?

[xilduq]

10:09 PM on 12/02/2011

the last i checked, i had a fico score over 800, but my credit union cards still have rates between 10%-12%. i agree 15% is high but it's not horrible - and if you pay your balance off every month on time, the rate should be little more than an afterthought anyway which is why i don't care that one car is 10% and another is 12% - i make sure it makes no difference.

[johnsonc20]

10:13 PM on 12/05/2011

Okay - I am being harsh. But debt should be 3% down and zero percent for a year or more with a good credit rating.

[blackranger]

10:44 AM on 12/02/2011

Banks use this "credit rating" as a sword over people's heads. That is the only threat they have that has worked for them. People need to figure out that if they bank locally, use credit unions and do as much business as possible within their own community, they would not have to be counting on using someone else's money to survive. Getting rid of credit cards by paying them off, perhaps having one for renting cars and such, is the logical answer to removing the power of the banks from your pocketbook. Your local bank can actually look at your account and that "credit rating" as though you were a real person.

[Ed Baker]

02:21 PM on 12/05/2011

If you close your card accounts, your credit score will decrease.

All institutions use credit reports and credit scores. Their OCC auditors demand it.

I know, my business audits them.

[sylvia wadlington]

10:24 AM on 12/02/2011

I see ads all the time for all the money banks are going to give you if you use their card. So if they are going to give you back money for each purchase, where is that money coming from? Better yet WHOSE money is it? Can't be the banks, not when they give their execs millions in bonuses, but it must come from somewhere. Think it might be the money they are planing on stealing from you in hidden fees? Put your money in a credit union and get a card from them and when you see those ads about all the points and percentages big banks offer, ask yourself, "WHERE DOES ALL THAT FREE MONEY COME FROM?

[QuantProgrammer]

10:58 AM on 12/02/2011

Actually it's from merchants. My Amex card gives me 2% cashback. I pay it off every month. Bank of America likes it that way. They charge the merchant 3% and give me 2% of the fee. It's a win-win for everyone but the merchant (although I try to pay cash to local small businesses).

[IndianIndian]

11:33 AM on 12/02/2011

Win-win, except for the merchant? And the merchant just eats the cost, right? He's not passing it back to the consumer? And the customers without the cash-back credit cards are not hurt at all?

[Ed Baker]

02:22 PM on 12/05/2011

It comes from merchant fees that they are paid the second the card is swiped. They make money on these fees as well as on the interest you pay.

[CCR4]

10:11 AM on 12/02/2011

If you were carrying a balance on a card with a relatively-high interest rate and also had a good enough credit score to qualify for a card with a much lower rate, odds are you are smart enough to have already transferred the balance over a long time ago, so this guy's so-called balance transfer movement is relatively worthless--most people who continually carry balances on high-interest rate cards do so because they can't qualify for one with more favorable terms (duh!)

[Rules Too]

09:40 AM on 12/02/2011

Lets see..... carrying debt on a credit card..... morons.

[SaburoHakaida]

09:37 AM on 12/02/2011

Good thing I don't have a credit card.

[Kenz300]

09:14 AM on 12/02/2011

The too big to fail banks need to be broken up into 2 or 3 smaller banks.

Move your money to a local banks, savings and loan or credit union.

Credit unions deserve a look. You might find they treat you better.