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Balance transfer deals are generally provided to customers who have an outstanding balance, and want the opportunity to pay off the debt without the anxiety of facing huge interest. However, balance transfer deals are not always a safe proposition, and there are many reasons why credit card customers should stay away from these deals.
Hidden fees
A lot of balance transfers come with hidden fees, which customers generally miss in the fine print. The hidden fees could be either balance transfer fees varying between 15 - 35 dollars, or annual fees on the credit cards, which could be up to 75 dollars, or in some cases both. These credit cards can be risky, as the issuers will also try to make up for lost revenue through interests in some other form. The hidden fees also eats into the savings that the customer is hoping to make through the balance transfer.
Lower Credit limit
Your credit rating could be negatively affected if you transfer your balance to a credit card that offers lower credit limit. A major problem is that if you are transferring balances from multiple credit cards to a single credit card, the percentage of your outstanding balance compared to the credit limit will be increased, which in turn reduces your credit rating.
Loss of Credit history
If your old credit card remains inactive for quite a while, credit card companies will stop reporting to the credit bureaus, which results in losing a lot of credit history. In effect, you will be starting from scratch as far as credit history is concerned. This means that loans, insurance, mortgage and even credit cards will all become more expensive for you in the future. If you want to avoid this, you will face the problem of managing multiple credit cards at the same time, which would be quite dicey too.
Varying promotional rates and promotional period
Most balance transfer cards have varying promotional rates and promotional periods. While those with excellent credit will still get 0% APR for extended periods, those with fair credit or bad credit might not get 0% APR at all and even if they do, it would be for a short period, which is insufficient to pay back the outstanding balance. If the promotional period is not sufficient to pay back the outstanding balance, then there is no point in going for the balance transfer deal, which significantly affects your credit history.
Higher APRs and loss of credit rating
A balance transfer effectively signifies that you are seeking more credit apart from what you already have. This takes away a few points from your FICO score. You are also facing the risk of shifting your outstanding balance to a credit card that will charge you with high interests once your promotional period is completed. So it is important to plan and implement the repayment of the entire balance perfectly, to ensure you are not left with an outstanding balance with high interest. Balance transfer deals seldom carry good reward programs either, so there is virtually nothing to look forward to after the promotional period.
