Credit Card Balance Transfers - 6 Disasters to Avoid
By Clyo Beck
Before looking to transact a balance transfer on a new credit card, be aware that a number of unpleasant consequences can occur to your finances should a miscommunication occur between you and the credit card agent who is facilitating the transaction. This article discusses six balance transfer disasters to avoid.
Balance Transfers On Rise
It's no news that, in these tough economic times, credit card customers are looking for low promotional rates on balance transfers. What most people do not know, however, is that problems with balance transfers are also on the rise, primarily due to miscommunication between credit card agents and the customers they serve. Problems include:
- Balance Transfers That Fail
- Surprise Interest Rates
- Surprise Fees
- Surprise Time Frames
- Unexpected Payment Allocation Provisions
- Differing APR's In Account Segments
Customers on the receiving end of these surprises are, understandably, upset because each surprise costs them time, money and frustration. Adding to the frustration is the fact that, each time a customer calls his credit card company, he talks to a different agent. Let's look at each instance in more detail to understand the impact each has on a credit card customer.
Balance Transfers That Fail - An Example
A customer calls in to shift a high interest loan from credit card account A to low interest credit card account B. At the end of his phone call, he believes that the transfer has been approved and account A will be paid off.
Two or three weeks later this customer discovers that credit card account A never received any funds from account B. When he calls customer service for account B, he discovers that the deal did not go through and, according to this agent, is never going to go through.
Worst Case Scenario: Anticipating that loan A would be paid in full the customer did not make his payment. He is hit with a late payment fee of $39, his account is "re-priced" as a result of being late, and his interest rate on loan A is doubled. This late payment will affect his credit score and it is unlikely that he will be able to get a balance transfer elsewhere in order to get out from under the doubled interest rate.
Surprise Interest Rates
A customer calls in to take advantage of a zero percent promotional rate on a balance transfer. He transfers a 9% loan from credit card account A to what he understands will be a one-year 0% loan on credit card account B. He expects to pay no interest for a year. Yet, when he receives his first statement he discovers that his "low interest" transferred loan has an 18% annual interest rate.
Worst Case Scenario: Fuming, the customer takes his frustration out on the next credit card agent who then has no desire "go out on a limb" in trying to get an interest credit for him. The agent checks the record, sees that the terms to which the customer agreed stipulated an 18% interest rate and tells the customer that, if he doesn't like the rate, he can pay off his account.
Surprise Fees
A customer responds to a promotional offer and calls in to transfer eight thousand dollars from credit card account A to his new credit card account B.
He understands that he will get a low promotional rate for the first six months, plus he thinks the agent agreed that he will not be charged a transfer fee (normally 1% to 3% of the balance being transferred).
When he receives his statement he is stunned to see a charge for $240.00 (3% of $8,000.00) which has been billed to his account as a fee for transacting the transfer.
Worse Case Scenario: Once funds are transferred, the terms under which the balance transfer occurred cannot be changed. Therefore, the 3% upfront transfer fee will stand.
Should the next credit card agent be persuaded to believe the customer was misled into believing that there would be no upfront fee, that agent may get authorization to credit the customer's account with an amount equal to the fee. However, if he believes that the customer knew what he was agreeing to, the fee will stand.
Surprise Time Frames
A customer transfers a balance of $5,000.00 from a credit card with a 12% interest rate to a new credit card account. He understood that the new account would have a zero percent interest rate for a year. While everything is fine for six months, in month seven he looks at his credit card statement and sees that his interest rate is now 18%.
Once funds are transferred, the terms under which the balance transfer occurred cannot be changed. Therefore, the 18% interest rate is the interest rate on his account. Should the credit card agent be persuaded to believe a technical glitch is responsible for the change, or that the customer was misled into believing that he entered into an agreement based upon a lower interest rate for a full twelve months, the agent may get authorization to credit the customer's account with an amount equal to the interest charged in month seven.
However, since anticipated or estimated future interest will never be credited to an account, the customer will have to call back in months eight, nine, ten, eleven and twelve if he wants credit for the interest added in those months. Each time he will have to re-explain his situation and request that his account receive a credit for the interest added that month.
Since the customer will talk to a different agent each time he calls in, he may have different results from month-to-month. Or, he may be told that he will not receive any more credits.
Worst Case Scenario: If the first agent, who speaks with the customer when he first calls in month seven, sees any kind of on-screen documentation that leads him to believe that the customer knew that he was agreeing to an 18% interest rate beginning in month seven, the rate will stand and there will be no adjustments at all.
Unexpected Payment Allocations
A customer takes advantage of a zero percent offer on a balance transfer and transacts a balance transfer for $10,000.00. He believes he has been told that he can allocate payments specifically to his purchase balance, so he goes ahead and uses the new card for purchases as well. Although his purchase rate is 18%, his intention is to pay off his new purchases each month so he pays no interest.
When he takes the time to examine his first (or second or third) statement, he realizes that all his payments are going toward the 0% interest balance transfer portion of his account while his higher interest purchase balance remains unreduced and is collecting interest at 18%.
Worse Scenario: Unfortunately, the worst scenario is the only scenario. No money he pays will be applied to his high-interest purchase balance until his balance transfer is repaid in full.
Differing APR's In Account Segments
A customer, who wants to buy a new TV, calls in response to a credit card offer he has received which advertises a a zero percent promotional rate on purchases. He does not ask whether the 0% interest rate also applies to balance transfers or cash advances. Instead, he assumes that it does. He decides to transfer $3,000.00 from a card on which a 2.4% promotional rate is set to expire. Then, in the forty-five-day interval before he receives his first statement for his new credit card, he charges a $2,500.00 big screen TV and gets a $300.00 cash advance at an ATM.
Worse Case Scenario: The 0% promotional rate only applies to purchases. The rate for cash advances is 21% and the rate for balance transfers is 18%. Due to a special provision, all payments he makes will be allocated first to his $2,500.00 purchases balance until it is paid off. All payments thereafter will be applied to his balance transfer loan of $3,000.00 (plus ongoing interest at 18%) until it is paid off. Meanwhile, interest will accrue on $300.00 at 21% until everything else on the account is paid off.
CAUSES
While some of these problems can be caused by technological glitches, I am told that the majority occur as a result of "communication" errors. For a detailed understanding of the factors which contribute to those errors, I refer the reader to my article "Could You Repeat That?" - Communication Challenges For Credit Card Agents.
SUMMARY
In our current economic climate more credit card customers are seeking out low-interest promotional balance transfers as a way to help them manage their debt.
However, there is always the possibility of miscommunication or mistake in regard to the terms agreed upon. When terms are misunderstood, then getting a new card and transacting a balance transfer can be pointless at best, and a financial disaster at worst.
Terms cannot be changed once funds have been transferred, so it is vital that credit cardholders understand what can go wrong in transacting a balance transfer.
Since it is the credit cardholder who will suffer should a balance transfer "go bad," knowing what can go wrong is not enough. He must adopt a pro-active strategy to make sure his transaction has the greatest possibility of "going right." To that end I refer readers to my article Credit Card Balance Transfers - How To Avoid Disaster.
©2009 Clyo Beck. The author asserts her moral rights.
Clyo Beck is the co-author of Money Saving Credit Card Secrets, an indispensible and practical guide on to how to avoid credit card hassles and save money that will pay for itself many times over. It is the best investment any credit card user can make.
For more free tips, or to preview the first four chapters of Money Saving Credit Card Secrets without cost, visithttp://www.moneysavingcreditcardsecrets.com.
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