The content is accurate at the time of publication and is subject to change.
Zero percent credit cards are plenty these days due to the economic recession that has taken the globe by storm. This is due to the very low prevailing national interest rate and also the fierce competition in a market which is growing very slowly. Its relatively easy in third world countries to get new customers in places that have not yet seen an ATM, but in the first world, the only people who do not have a credit card are those who do not want one.
The introduction of the zero percent balance transfer is one of the best things that could have happened to people who are burdened with huge amounts of debt that they are having a hard time paying. The principle on which a balance transfer works is very simple. The amount you owe to a certain credit card company will be transferred in whole to a new credit card. The new credit card will not charge you any interest rate on the outstanding balance for a certain introductory period. You will be charged a small fee to make this transfer. Everybody stands to gain from this because the old credit card company gets its money and you get more time to pay the balance without any interest. The new credit card company gets a customer, initial and annual fees if you pay the balance by the end of the introductory period.
It can seem very attractive at first, but you need to take some precautionary measures at the start. The first thing that you need to know is that there are many different types of zero percent credit cards. There is zero percent on balance and zero percent on purchases made and these two things are totally different.
If you go for a zero percent on balance transfers this will mean that any purchases you make during the introductory period will be charged interest. But again you will have a certain grace period to repay these purchase amounts.
For example, if you have a $1000 on your card at a rate of 20%, you can transfer this to a new card for a fee. This new card may give you a nine month interest free period. You will save almost $200 in interest and the fee for the transfer will cost just about $50. But if you buy something on the new card for a few hundred dollars and do not pay the amount, you will be charged the 20% prevailing interest rate on the new card. This is a common mistake that most people commit without being aware of the consequences.
Another thing that you need to verify is the annual fee. The annual fee will not be explicitly mentioned but it will be applied in most cases since it is a zero percent rate card. The annual fee can be as high as 20% at times and this can eat into all the savings that you hoped to make. Apart from this, you also need to verify the charges applied in order to make the transfer. This can also be pretty hefty and will be a cause for concern if you do not negotiate a good deal at the beginning of the term.