Report: Two-Thirds of Consumers Mishandle Intro Rate Balance Transfers

Perhaps there’s a good reason why introductory balance transfer offers are so prevalent–and it’s not because credit card issuers are being charitable. Not only are they an easy way to attract new customers, but they also seem to be quite profitable for the issuers.

In a working paper from the MIT Department of Economics called “The Age of Reason: Financial Decisions Over the Lifecycle,” the researchers found that of the nearly 15,000 people surveyed, roughly two-thirds made new purchases after transferring a balance using the teaser rate.

Experienced credit card users know that this is one of the easiest credit card traps to fall into: any new purchases made on your card will accrue interest at the regular interest rate, but any payments that you make will first be made towards your balances held at the lowest interest rate. As a consequence, it’s a mistake to ever make new purchases with a higher APR while holding a low rate balance.

According to the study, however, more than one-third of customers continued to make new purchases every month, racking up interest at the higher rate. Another one-third made some purchases during the first six months, but must have noticed the higher interest charges and stopped.

As long as these trends continue, it seems there’s little chance that credit card companies will stop making these offers, which is good news for those who know how to play the game.