Balance transfer is a miracle for those who have mounting credit card debt. Using a new credit account to settle previous credit card debts sound silly however for most Americans who experiences troubles of such nature.
Opening a new account for credit card balances transfer makes sense and can be of great help to save a lot of money. But how does this balance transfer work?
In times when you cannot pay your debt to your first credit card company resorting to another credit card company to pay for that owed amount can possibly be your way out of that debt problem. For instance, you owe Company X the amount of $5000 and let`s say you also owe Company Y with $2000. You cannot pay these two companies anymore and you decided to transfer your debt to Company Z. Company Z offers a 0% interest rate for 12 months in balance transfer cases. Company Z will pay Company X $5000 and Company Y with $2000 making you free of any debt from the two companies however the owed amount did not disappear for balance transfer is no magic. After the transfer has completed, you now owe company Z $7000 at 0%.
Credit card is a big business today thus several different companies come up with services such as balance transfer at 3% or lower interest rate to allure customers. This can be both a good and a bad thing for consumers. Good because if the competition of credit card issuers is stiff then choice of products and services abound and customers can pick from a lot of choices. However this can also post threat for consumers since sugar-coated offers can become so irresistible at first but will end up a disaster if insufficient knowledge was use to decide.
Balance transfer at 3% or even 0% interest rate is common nowadays. Low right? Usually low rates are offered to get customers but these things mostly are baits which later on leave consumers with no way out, paying high interest rates and having more debts. So what should one do then?
Balance transfer is not at all a bad thing. It is true that this can be a saving grace if coupled with careful assessment of these offers.
First thing to keep in mind is that balance transfers offer promotional interest rates. It is promotional and promotions end so you have to be wise enough to ask when the promo ends. Another thing you must know is the promo interest rates and the actual interest rate after the promo period. Since credit card companies increase rates substantially, so to avoid being surprised by paying more that you are expecting, it is good to ask and know things before hand. In transferring a balance most companies charge fees to complete the transfer thus it is good to know if your prospect new credit card company will charge you and by how much. The smaller the fee to pay, the better it is for you.