Just last month, Bank Transfer Day encouraged disgruntled consumers across the country to move money out of their bank accounts and deposit the funds in credit unions and smaller, community banks. Partly as a result of this successful campaign, hundreds of thousands of American large-bank customers opened credit union accounts since the day the campaign was founded.

Another idea, though it hasn’t gained nearly as much traction with fewer than 600 Facebook fans signed on, is to leave the large credit card issuers behind by transferring outstanding balances to lower-interest cards, like those offered by credit unions. In an ideal world, customers would, on December 11, apply for a zero-interest, zero-fee credit card and include in the application instructions to transfer a balance from a higher rate card.

To figure out who’s behind Balance Transfer Day, you’ll need to trace it through several different initiatives and apparent organizations, but at the root, this effort was organized by a for-profit company whose primary business is an affiliate-based credit card application website. I’m wary about seriously promoting a movement that, when you look layers deep, is organized for the financial benefit of the parent company. Unlike Bank Transfer Day, organized by a woman with no ties or endorsement by the financial industry, the founders of Balance Transfer Day can be easily but not obviously traced to a site called credit-land.com, which has a “Student Credit Card Education Initiative.” This is not a non-profit organization, it is designed to promote the products of the parent website.

There is no association between this organization and the Occupy movement, though they attempt to make it appear there is a connection by using the Guy Fawkes mask in the Balance Transfer Day initiative logo and using “Occupy” language.

It’s also worth noting that the Twitter handle for the movement is “OccupyBankRate” — a company called BankRate just happens to be a competitor of the organizers. An article on Huffington Post identifies the founder of the movement, Michael Germanovsky, as a laid-off architect, but the writer conveniently neglects to mention that he is also the editor-in-chief of credit-land.com.

For Michael Germanovsky’s response, please see the comments below the article.

Regardless of who organized this movement and how the organizers are promoting it, individuals should always do what’s best for their finances. In some cases, that could include transferring balances from high rate cards to cards with 0% introductory APRs for balance transfers. There are potential traps, though. And the big issuers just happen to have been improving these offers recently, eliminating or reducing fees to entice more customers.

• If you do not pay off the entire transferred balance within the introductory period, you will be subject to higher interest rates, and you could be paying more total interest than you would have if you had left the balance on the original card.
• If you apply for or open many 0% APR card offers around the same time, your credit score could be negatively affected.

The rationale for the transfer from a anti-industry perspective is that since the large banks receive benefits from the government, like a facility to borrow money at 0% APR, it isn’t right that the banks charge even higher rates to their customers who borrow money. By bailing out Wall Street, the government supposedly intended banks to pass the savings to customers in the form of lower rates encouraging borrowing, but the banks decided to use the funds to keep cash on hand to improve their appearance of financial condition for the benefit of their shareholders. Interest rates have been higher since the bailout than they had been in recent years, but there are less expensive options for borrowing than these major issuers.

At the same time, the best zero-balance transfer introductory offers are still promoted heavily by the major issuers. If you look at the website for the underlying company that organized the movement, they promote Citi, Capital One, and Discover as being the best cards for balance transfers. This is despite the movement’s apparent goal to recommend credit unions and small banks.

As a movement, Balance Transfer Day won’t gain as much traction as Bank Transfer Day. The back story isn’t compelling enough, and the motivation, though well-buried, is profit and promotion for the underlying company.

Will this movement inspire you to transfer a high credit card balance from one card to a zero-interest offer on a different card?

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The choice to use credit cards tends to be more personal than financial. While credit card use can be the gateway to a lifetime buried in debt, it doesn’t have to be. Most people are Type A credit card users. Type A credit card users see credit cards as a tool for buying anything for which cash might not be available. This leads to spending more than one can afford, increasing debt month after month. Type A credit card users often pay interest and sometimes pay late fees, increasing the cost of the use of the credit issuer’s money.

Type B credit card users use credit cards as a spending tool. They take advantage of the float provided by credit card issuers, a form of leverage, to delay their payment, allowing their own money to keep earning interest in a savings account. Type B users pay their bill on time and in full every month, collecting valuable rewards. The fees that Type A individuals pay to credit card issuers — as well as interchange fees issuers charge merchants — cover the cost of accepting Type B credit card users. Without the income generated by borrowers who pay interest and late fees, credit card issuers might need to reduce the rewards offered to those among Type B.

There’s more about Type A versus Type B credit users in this article about breaking the credit card habit.

Pete D’Arruda is a good example of how far Type B credit card users can go. While Pete admits to occasionally carrying a balance, when he does, it’s a fraction of the $300,000 total credit limit he has over 25 credit cards. I can’t imagine why anyone would need that much credit, but Pete seems to have created this financial situation just as a proof of concept. It may have paid off. He claims to have a FICO credit score of 810-815, squarely in the “excellent” range. His good score has likely saved him thousands of dollars thanks to lower interest rates and more favorable insurance terms, and with a mix of good credit cards, he is accumulating rewards points that he can use. Pete has also used his good credit history to negotiate annual fee waivers on some of his credit cards, including the elusive Visa Black Card.

Extreme perspectives are always interesting. There are many people who, as a reaction to overspending and climbing out of debt, have sworn off credit cards completely. Any credit card use is seen as bad or dangerous. For some spenders, that might be the case. I wouldn’t suggest anyone with a tendency towards compulsive or emotional spending to seek the latest credit card offers. For people who don’t have their finances under control, credit cards can be destructive. The choice of a financially secure individual to refuse all credit card usage, despite the potential for earning rewards and taking advantage of the float is an extreme action, just like Pete is an extreme example in the opposite direction.

Moderation may be more boring, but it’s the right answer for most people. Anyone who is financially prudent can take advantage of a few, appropriate credit card offers. Not everyone, even those who are completely in control of their finances, should attempt what Pete D’Arruda has done. A few mistakes could be costly.

Photo: SqueakyMarmot
Marketwatch

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