The content is accurate at the time of publication and is subject to change.
Rate of interest is the amount that will be added as interest on credit cards for the total outstanding balance due. If the bills are not paid on time, or only a partial amount of bill is paid, rate of interest is calculated for the remaining balance payment and added to the total, on a daily basis. Balance transfer is a process in which a new credit card is given to the customer, and the total outstanding balance from the old card is transferred onto this new card. The whole scheme is interesting because it offers 0% rate of interest on the new credit card.
0% interest rate means, the customers choosing the balance transfer scheme need not pay the rate of interest for the old balance carried over. This makes the scheme suitable for people looking to clear off the debt faster, cannot pay the high interest rate associated with it. The monthly payments made in favor of the new credit card goes completely in clearing of the debt amount, which makes it easy to clear it sooner.
Credit card companies usually offer the 0% interest rate, only for a specified time period ranging from 6 to 12 months. People opting for this scheme must inquire about the interest rates after this period, to asses if the deal is a good one. Good deals will have the interest-free period for a long time, and have reduced interest rates on the credit card after the period. The scheme is designed to help people clear off the debts and improve their standing in the credit score. However, balance transfer scheme may cause the credit scores to drop further, since it requires the customer to close the old credit account. But because it will help to build the scores and clear the debt, it is worth a try to get to the good credit zone.
0% interest rate does not mean that the new purchases made on the card will not be charged interests. The interest-free offer only applies for the balance carried from the old card to the new card. The interest rates charged for any new usage of the card however, will be higher. The payment made for the new purchases will be utilized to cover the old balance, which leads to further accumulation of debt. Therefore, using the new credit card for any new purchase is not advisable.