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Research: Balance transfer credit cards – common pitfalls to avoid -

If your credit card debt is very high and the interest is constantly piling up on top of the debt, a good way to arrest the slide is by transferring the debt to another card which offers a lower interest rate and a better chance at saving some money. However, not all balance transfer credit cards are as attractive a prospect as they seem to be. There are some pitfalls involved and credit card customers should be careful enough to avoid those if they really want to make the balance transfer count. Here are some of the pitfalls that customers should keep an eye out for.

Balance transfer fees

There is always a fees involved in case of balance transfer which is unavoidable. However, the balance transfer fees could be low or high and you must be careful about avoiding credit cards with high balance transfer fees. Usually the fees ranges between 2 – 5 % of the balance transfer amount. Higher the debt that you are transferring, greater will be the fees that you have to pay. This adds to the debt and you must be careful enough to calculate whether the high fees is really worth paying, given the benefits associated with the balance transfer credit card.

Annual fees and other penalties

A lot of credit cards deal in very tricky terms. The benefits are obvious to the credit card customers but the fees and penalties are usually not so obvious. So, while the card holders are looking to reap significant benefits, they end up losing money on the credit card because of hidden charges and penalties. An annual fee of around $75 for example, can significantly dent what the customers could save through a 0% promotional interest rate, balance transfer credit card. Similarly higher penalties and charges for ATM withdrawals, etc. will mean that credit card issuers aren’t really giving out any freebies to the card holders. Hence, card holders should not just look at the promotional interest rates but also at other numbers that might come back to sting them later. The more air-tight their calculation, the more accurate it will be, thereby helping them to save on additional interests on their debt.

Balance transfer structure

Not all balance transfers take place in the same way. Usually, in case of balance transfer you are allowed to pay back the debt on your credit card using another credit card, thus transferring the balance from one card to another. However, in some cases, you have to pay back a minimum amount right at the start, to activate your balance. For example, unless you pay back 20% of the balance, your balance transfer credit card isn’t activated. This means you are practically allowed to only transfer 80% of your balance, which may or may not suit your requirement.

Long term numbers

The interest rate after the promotional period should be observed with particular interest. Although the promotional interest rate could be low, it is of no real use, if the final interest rate is way too high for your comfort.