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What to be careful of with balance transfer credit cards
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What to be careful of with balance transfer credit cards

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Balance transfer credit cards offer two distinct advantages compared to other credit cards on offer in the market. Firstly, with the help of balance transfers one can get rid of a credit card, where the terms and conditions such as the credit limit, APR and fees are not favorable. Secondly, balance transfer credit cards come with an introductory offer including 0% introductory rate for 6 – 12 months thus allowing the cardholders to get rid of their debts. However, there are some factors that need to be considered by cardholders before they go for a balance transfer offer.

Annual fee and balance transfer fee

The fee to be levied on the balance transfer credit card plays a major role in deciding its effectiveness. It is important to ensure that you are not paying a lot of fees, which would end up negating the benefits of 0% interest rate during the introductory period. There are two types of substantial fees levied on balance transfer credit cards, the annual fee and the balance transfer fee. The annual fee which could be in excess of $100 could add to the outstanding debt of the cardholder. The balance transfer fee is usually around 3 – 4% of the balance transfer amount and also will add to the burden of the cardholder. Hence cardholders need to make sure they will save a substantial amount over and above what they pay as fees. Only in that case, the balance transfer will make valid financial sense.

What does the 0% introductory rate include?

Cardholders also need to check what the introductory rate of 0% includes. In some cards, the 0% is valid only for the balance transfer amount. However, in some other cards it also includes the purchases made on the card which means added benefits. Hence cardholders should distinguish between the two types of introductory offer when they accept it.

What is the final APR?

Some balance transfer credit cards offer excellent introductory terms. However, the APR after the introductory period could be as high as 20%. Hence cardholders need to ensure that they are aware of what the APR would be after the introductory period and also consider whether it would be comfortable enough to pay the interest over the outstanding balance.

Fine print

Balance transfer credit cards come with many offers but the fine print is also very important. For example, some credit cards cancel the 0% introductory offer as soon as the customer fails to make a payment on time. This could ruin every calculation that the cardholder would have made before accepting the offer. Similarly, some balance transfer credit cards come with opening bonuses and waiving off of issuance and transfer fee. However, this could be valid only if the customer reaches specific milestone expenses in the next 3 months. All these terms and conditions become very important when you are considering the value provided by a balance transfer and the amount of saving that you can make by transferring your balance.

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