Catch a transfer by the toe, lest it catches me...

November 17, 2010 4:00 PM

Is this balance transfer offer Citibank sent me a good idea? There's always a catch, right? What's the catch?

I have some credit card debt I'd like to be rid of. I've been paying it off, getting ahead of it, but I'd like to be rid of it as quickly and as cheaply as I can.

I got an offer in the mail for a Citi Divided World MasterCard, and one of its perks is a 0% APR on balance transfers until February 2012 (and 12.99 after that).

The two balances I've been paying down are the following:

$4072 on an eBay MasterCard with a 23.99% APR (yeah, I know. It seemed like a good idea at the time, and then I ran it up.)
$3850 on a Discover card with a 12.99% APR (it varies a little each month, but that's what it was last billing cycle)

0% from now until February of 2012 sounds very attractive in theory (I imagine that's the idea), but I know that no one is doing any favors for me; I know there's a benefit to Citibank if I take them up on this. I've read through the fine print that came in the envelope--there's a 3% fee on transferred balances, for instance--but I know it can't possibly be that easy. I figure one or two of you have done things like this before, so before I either mail in the application or run this through my shredder, I wanted to see if this was a good idea or not.

Related: what happens if they decide they don't want to transfer all of my current balance? Is there any way to find out what they'll transfer before I get stuck with a card I don't particularly want?

posted by andrewcilento to work & money (24 answers total)

12.99 is as good or better than you have, so go for it.
posted by k8t at 4:02 PM on November 17, 2010

The catches with balance transfers are usually just the obvious ones:

1) If you don't pay it off by the end of the offer, the rate goes and up.
and
2) There's a transfer fee.

It also used to be that if you charged more on the card later, they would apply payments to the 0% balance and let interest gather on the purchases you made at the regular rate. I think the new laws passed last year prohibit this kind of thing, but don't quote me on that.

I don't think there's any way to know what your credit limit will be in advance, but you could always just cancel the the card if you didn't like the credit limit you got. In other words, you can apply for the card but wait to execute the transfer. If the limit is not to your liking, you just cancel the card. If it is, you do the balance transfer. (although there is really no draw-back to having more credit cards if you don't run up balances- having more available credit will up your credit score.)
posted by drjimmy11 at 4:05 PM on November 17, 2010

The way they make money is the transfer fee and that most people don't pay it off by the end of the 0% period. Sometimes they'll back-fill the interest for you, that is if you don't pay by Feb 2012 that you get to pay 12.99% on the money for transfer date through Feb 2012.

In all, if that 12.99% APR is fixed and you can transfer all of your balances over, it's probably a good choice. Make sure to smash that eBay MasterCard with a hammer (by which I mean don't use the account but don't close it either, helps your credit score). I do believe you will get a notification that the full $8k won't transfer due to not high enough of a credit line.
posted by Mister Fabulous at 4:07 PM on November 17, 2010

A. They take over further interest payments on those debts once the 0% time expires.

B. If you miss a payment, even if you are late by a day, they will jack your rates up to the max under law, 29.9% or whatever your state law max is.
posted by ShootTheMoon at 4:07 PM on November 17, 2010

One "Trick" - usually if you transfer the balance and then continue to use the card the new purchases will get your current citibank rate (probably not 0%) and all payments will be applied to the 0% balance first. So if you keep charging with the card, you will be getting finance charges which grow on the new purchases. You could build up quite a bit of non 0% debt by February 2012.
posted by NoDef at 4:09 PM on November 17, 2010 [1 favorite]

Oooh ShootTheMoon is absolutely right about "B." Citibank is actually one of the less sleazy card issuers, but I bet they would still do something like that. I highly recommend setting up a recurring payment through your bank's website, just to make absolutely sure you don't miss a payment.
posted by drjimmy11 at 4:10 PM on November 17, 2010

NoDef, as I mentioned above I am pretty sure that trick is no longer legal.
posted by drjimmy11 at 4:11 PM on November 17, 2010

The benefit to them is that they have a new customer that has a habit of running up a bill that is profitable that they are not making money off of now. You pay the transfer fee, you get used to not paying it down and you carry a balance.

I've transferred a balance before. Pay the transfer fee, paid off before the time came. They'll usually tell you how much you can transfer. Call 'em.

Does it have an annual fee?

I always go to bankrate to check out what's out there. Here's their deals on balance transfer.
posted by Gucky at 4:12 PM on November 17, 2010 [2 favorites]

Like NoDef says, any charge on the card will snowball until you pay off the transferred balance, so you'll want to put it away where you can't get at it. And don't backslide on the payments because the interest pressure is temporarily relieved.
posted by bonobothegreat at 4:15 PM on November 17, 2010 [1 favorite]

drjimmy11: "I don't think there's any way to know what your credit limit will be in advance, but you could always just cancel the the card if you didn't like the credit limit you got. In other words, you can apply for the card but wait to execute the transfer. If the limit is not to your liking, you just cancel the card. If it is, you do the balance transfer. (although there is really no draw-back to having more credit cards if you don't run up balances- having more available credit will up your credit score."

Are they going to offer me the same rate on balance transfers if I wait until after I apply?

Gucky: "I've transferred a balance before. Pay the transfer fee, paid off before the time came. They'll usually tell you how much you can transfer. Call 'em.

Does it have an annual fee?"

I called, they said there's no way to know until after I've applied already. Kind of the situation I was hoping to avoid. And no, no annual fee.
posted by andrewcilento at 4:23 PM on November 17, 2010

It's worth checking on Bankrate.com to see what the competition's offering on Balance Transfer cards. I see there's one that has 0% for 21 months, for instance. (It also charges 3% for the transfer.)
posted by small_ruminant at 4:28 PM on November 17, 2010 [1 favorite]

Check the offer to see what, if any, balance transfer fee will be charged. It may still make sense to take the offer, since it's effectively 3% APR if there's a 3% uncapped BT fee. Hopefully your specific offer has a $50 or $75 max balance transfer fee.

Also check to see if the offer is only valid with balance transfers submitted with the application. I've seen them both ways. If it doesn't have that language, you can apply for the card and only use it if they give you a respectable credit line. That said, it doesn't really matter what the credit line is, it's still an improvement over the present situation unless they do something stupid like require a 5% minimum payment.

Otherwise, so long as you pay your bill on time, the most they can screw you is by not giving you enough of a credit line to cover the entirety of the balance transfers you want.

And yeah, payments are now required to be applied to the highest interest rate balance first.

One thing I don't recall is if Citibank has historically been one of the banks that won't jack your rate until the second missed payment within six months. That's something that varies between issuers. Amex is nice that way.

Also, there is no legal maximum as to the interest rate they can charge, only what is in your agreement with them. Thank the supreme court and the federal government for not having a usury law. I've seen (subprime) cards with purchase rates of 36% APR and default rates over 40%.
posted by wierdo at 4:28 PM on November 17, 2010

I've done basically the same thing, with Citibank (although in Australia, so the laws regarding what gets paid off first are probably different). There was no "catch" apart from the fact that you think to yourself "ooh wow I've got a nice new credit card with low interest, I should go spend some more!". They're banking on you spending. If you show discipline, and instead regard it as a zero-interest loan, and pay the hell out of it, then you'll come out ahead. If not (heh, like me), you'll find yourself exactly where you are in 12 months time.
posted by Jimbob at 4:31 PM on November 17, 2010

That's like 16 months, which is an amazing length of time to be offered a 0% APR these days. Even with the 3% fee, it works out to about 2.25% APR. You could make a lot of progress in paying off your bills in that time if you put your mind to it.
posted by kindall at 4:32 PM on November 17, 2010 [2 favorites]

The biggest "catch", I think, is that they generally don't provide any reminder of when the offer expires and the standard rate kicks in. So you'd have to have a big red reminder on your calendar for January 2012, and either pay off the balance before the promotional rate expires, or transfer it away somewhere else.
posted by holgate at 4:35 PM on November 17, 2010

I have done several 0% APR balance transfers with Citibank. The "good old days" of the App-O-Rama are long gone, but with discipline these 0% deals can still work out ok. (In the "good old days" there would be zero fees, or fees capped at $75.) I can speak from experience -- if you miss a single payment with Citi you WILL lose the 0% rate.

One "hidden" cost of drawing down on BT offers is that you will have a line of credit with close to 100% utilization. This can negatively impact your credit score, but if you are already carrying large balances on other lines, your credit score probably has already taken a hit. Note that adding a single extra line at 100% utilization will (likely) impact your credit scores a lot more than numerous other lines at 33% utilization.

The majority of people will NOT have the discipline to stop using the card (and thus will rack up interest on those purchases at the purchase rate). (Payments are applied to the BT first, so if you make any purchases on the card, there's no way to pay them off without paying off the BT amount beforehand.) Or, the customer will do what I did, and will mess up on scheduling a payment and thus "lose" the promotional rate before it expires.
posted by QuantumMeruit at 4:37 PM on November 17, 2010

small_ruminant: "It's worth checking on Bankrate.com to see what the competition's offering on Balance Transfer cards. I see there's one that has 0% for 21 months, for instance. (It also charges 3% for the transfer."

Actually, that one seems like it might be a better fit for me for two reasons:

1. The 21 month 0% APR period, and
2. The fact that it says you need "Good" credit, whereas the offer I have sitting here on my desk says you need "Excellent" credit. My credit score falls into the "good" tier last time I checked (I have one of those credit monitoring services that I probably don't need but has been handy so I keep it around).

Lots of good advice here, and I think I'm going to go ahead and do this. At the very least, some of my current debt at 0% is better than none of it, and I can always pay what I transfer off and then transfer more over if I need to.
posted by andrewcilento at 4:38 PM on November 17, 2010

Alright, well. $1200 is better than nothing. This'll help.
posted by andrewcilento at 4:53 PM on November 17, 2010

Just to reiterate one more time, as of May 2009, US law requires your payment be applied to the highest-interest balance first.
posted by drjimmy11 at 5:01 PM on November 17, 2010 [1 favorite]

andrewcilento wrote: "Alright, well. $1200 is better than nothing. This'll help."

Call them and ask for a higher limit. Sometimes they'll give you more, sometimes they won't. Doesn't hurt to try, anyway.
posted by wierdo at 6:33 PM on November 17, 2010

In my experience, the standard catch involved in accepting unsolicited offers from big players in any market for any commodity is that these are almost always sent out in response to the creation of a far better deal by a small competitor - it's an opportunity-cost thing. So you've done exactly the right thing by checking out what else is on offer. Well done you.
posted by flabdablet at 6:51 PM on November 17, 2010

Call your current cad company, tell them you have an offer you're considering, and see if they can match it. Probably not, but it doesn't hurt to ask.
posted by theora55 at 8:06 PM on November 17, 2010

This might seem unrelated, but I'll say it anyway...

If you have the financial means (even if it would be a hit to your savings), pay off your debt in full and don't bother with stuff like this. Then don't run up debt.

The money you'll save on interest could be invested so you could be earning money instead of worrying about paying it off within a given time frame. And with interest rates as high as you have now you'd save a ton by just biting the bullet and paying it all in full up front (if of course you have that much).
posted by Elminster24 at 10:19 PM on November 17, 2010

Elminster24: "This might seem unrelated, but I'll say it anyway...

If you have the financial means (even if it would be a hit to your savings), pay off your debt in full and don't bother with stuff like this. Then don't run up debt.

The money you'll save on interest could be invested so you could be earning money instead of worrying about paying it off within a given time frame. And with interest rates as high as you have now you'd save a ton by just biting the bullet and paying it all in full up front (if of course you have that much)"

In a perfect world. Sadly, this is not a perfect world.
posted by andrewcilento at 10:27 PM on November 17, 2010 [1 favorite]