Doin' the Credit Card Shuffle

by David Horowitz

If you have good credit and one or more major credit cards, you're a potential player in the game of shuffling credit balances from one card to another. To get in the game, simply answer any of the offers you've probably received in the mail from banks and other credit-card issuers. If you don't have their cards, the banks will send you one. All you have to do is transfer your balance from your other cards to the new one.

Why do these companies want your short-term debt? Because that's where the profits are. Two-thirds of all credit-card holders carry a balance on their accounts. Annual card fees may cover all or part of the cost of administering those accounts. But the banks' profits come from interest paid on borrowed money -- not from fees. To get those unpaid balances, lenders are offering card holders all kinds of incentives to transfer their accounts. They include cards with no annual fees, limited-term, low- interest rates and pre-printed checks made out to the competing card companies. Chase Manhattan Bank even encouraged card holders to use their other cards to collect benefits, like frequent-flyer miles and discounts, and then transfer those balances to Chase.

Discover Card recently offered its card holders a one- time rate of 5.4 percent interest on all balances transferred to their Discover Card accounts. That rate is good until the end of the year. Discover is apparently betting that most of those customers will still owe money when the promotional interest rate expires.

The way to win the game is to take the goodies, keep the no-fee cards, transfer your balance to the lowest rate you can find and then pay it all off as quickly as possible. As an added bonus, using one card to pay off another may buy you another month with no additional interest.

That's the up side. The down side is that simply shifting short-term debt from one lender to another doesn't eliminate the debt itself. Winning the game depends on having the resources and the discipline to pay off the balance. Card holders must resist the temptation to run up more charges on those cards with a zero balance and end up deeper in debt than before.

You should also read the fine print on the application before switching accounts. Some no-fee, low-interest cards have dropped the usual 25-day grace period. That means you're charged interest on purchases and transfers the day they're posted. So, even if you pay off your balance every month, you still end up paying interest on your account.

If you don't want to be bothered shuffling accounts from one card to another, you may still benefit from the intense competition in the industry. Banks sent out 1.3 billion credit-card applications last year. That's four for every person in the United States. With so many banks trying to lure away each other's customers, industry analysts say most lenders can't afford to raise credit-card interest rates -- at least for the time being.