For a number of years now, credit card companies have been devising new methods to attract more customers. Providing 0% interest rate balance transfer credit card is one of the newest and most lucrative options that they have come up with.
These offers may look appealing, but you need to be aware of what you are getting into before taking the plunge. Before we start discussing the pitfalls associated with balance transfer cards, we need to understand how they work.
A balance transfer card is essentially a zero percent interest rate credit card. The low interest rate is due to the introductory offer that they make. An introductory offer is a short term offer which will provide a low interest rate for say six months to two years at the most. So you can gain almost two years in which you can plan and gather enough funds to be able to pay off your outstanding debt without interest. The only expenditure will be the transfer fee and the annual fee on the credit card.
You need to be aware that there are scenarios where, taking up such an offer can be counter productive. It may cost you more than what you are saving in interest rate cost. We shall go over a few of those scenarios where you might have to spend more than you save.
If you have a yearly fee applied to your card, then you will have to calculate the savings you will get to find out if it is actually worth your while to make the transfer. Annual charges can run up to even a $100 sometimes, and hence you need to check this out before you make the move. The transfer charges are a big hurdle that you have to negotiate in your favor. If this is impossible you can get them to give you a discounted transfer charge. Apart from this, also consider the fact that if you do not repay the money by the end of the introductory period, you will have to incur the interest rate that will be imposed by the credit card company.
It is important to find out the interest rate that will be imposed after the end of the grace period or introductory period. If the interest rate is going to be 12%, and you are just paying 8% at the moment, then you have a problem. You need to realize that a balance transfer will give you time to come up with the cash that is required to sort out the outstanding debt, but it cannot give you ideas on how to make that cash. For that you need to change your lifestyle and cut down on your spending or find newer avenues for earning additional income. Getting a balance transfer card is a second chance in your financial life. Make use of it by trying your best to come up with the cash that you owe to the bank. Spending more on the new a card will only add to your bucket of woes.