Balance transfer credit cards are useful for those who are looking to get some relief from excessive interest rates charged by credit card companies on customer debts. Balance transfers are usually accompanied with promotional options like 0% introductory interest rate and various other incentives. However, one must be careful with balance transfer credit cards
particularly because they are also associated with several costs that may come as a surprise to the credit card customers.
Balance transfer fee
Normally customers have to pay a balance transfer fee that varies between 3 – 5 % of the credit card balance that customer has. This transfer fee could eat into the savings which the customer hopes to make in the form of interests avoided through 0% introductory rate offer. If one has a high credit card balance then the balance transfer fee could also be very high and would add to the existing card debt. The customer has to be careful in his calculations and estimations to ensure that the balance transfer is worth it.
The annual fee on credit cards is another way in which credit card companies try to charge the customers even as they try to profit from the 0% introductory rate offer. Although many card issuers waive off the annual fee on the credit cards in the first year, it isn’t really a compulsion. An annual fee in excess of $75 could be substantial and would be an added cost that comes along with the credit card.
Initial percentage payoff
Customers who are planning to go for a balance transfer might find their calculations upset by the fact that some credit cards expect an initial payment before the balance transfer. This payment would be a percentage of the total balance. Although this helps the customer to reduce the debt initially, the interest saving they were hoping to make isn’t really achieved.
Higher interest rates after introductory period
One of the things that customers fail to realize is that in most balance transfer credit cards, the interest rate is hiked rather steeply at the end of the introductory period. Card customers have to be careful about this because if they don’t clear their debt before the end of the introductory period they might find themselves paying excessive interest once again. This will, in a way defeat the purpose of the balance transfer credit card. Therefore one of the tricks is to make sure that the balance transfer credit card is a usable one. In other words, one should be able to stick to the card even after the introductory period. This is possible only if it offers reasonable card terms even after the introductory period is over.
Lowering of credit limit
This could be one of the facets that card customers might ignore. If you are closing account with one credit card to transfer balance to another, you must ensure that the new credit limit is higher than the older one. Otherwise, your credit utilization ratio will increase thereby adversely affecting your credit rating.