In order to attract customers of other credit cards, card issuers are offering incentives in the form of balance transfer credit cards, with some attractive options. There are some benefits with the zero percent balance transfer, the card holders get a temporary break from the accruing interests, allowing them to focus on paying the principal debt as quickly as possible. However, there are some problems with balance transfer credit cards, which the holders must be really careful of.
Credit rating would decide the length of the introductory period
Card issuers certainly play some tricks here. The length of the introductory period during which the card holder gets a low or zero percent APR, could depend on the credit score. Hence, customers have to be careful about their calculations. Even though the card might claim to offer up to 21 months introductory period, it might not always be the case for card holders of low credit score, leading them into a futile shift from one card to another which wouldn’t be of any substantial help.
Although you save on balance transfer credit cards with zero percent APR in the promotional period, you might be paying out on other charges that include annual fee and balance transfer fee. These additional charges would add up to the debt and eat into your savings. So customers have to be spot on about their calculations and estimations before choosing to go for a new credit card.
It could be a cyclical habit
It is a good habit to pay off the outstanding balance. Jumping from one credit card to another is a cyclical pattern that would lead to a card holder constantly avoiding having to pay off the debt. In the longer run, too many balance transfers will also negatively impact the credit score of the customer, as it proves that the customer is constantly seeking new modes of credit.
A complacent card holder could run into high APR
After the introductory period the APR on the credit card takes a massive jump. If the card holders are complacent, they might miss paying the complete debt before the end of the introductory period. This would lead them into a tricky situation with an outstanding balance and an even higher APR.
Reduction of credit
Customers go for balance transfer because of their inability to pay off their debt. There is a good chance therefore that the card issuer will be approved for lower credit limit.