Balance transfer credit cards often extend a lifeline to those credit card customers who are neck deep in debt. Those balance transfer cards
that offer a zero percent interest rate during the introductory period, are especially helpful as they allow the card holders to stop worrying about the interests and instead focus on the credit card debt. However, balance transfer credit cards come with some sticky parameters and customers should especially be careful about the fine print. Here are some parameters they should pay attention to.
Total savings during the introductory period
The main reason cardholders prefer to go for a balance transfer is because of the attractive incentives usually provided during the introductory period. This is when the interest rate could be as low as zero percent, not just on the balance transferred but also on the purchases made on the credit card. So the customers could be looking at a substantial saving in terms of the interests. Credit card holders need to do a clear calculation of what they would save by the end of the introductory period, and analyze if the move from one card to another is worth the saving. Ideally one would expect to save in excess of a couple of hundred dollars in a year’s time with a balance transfer credit card.
Length of the introductory period
The introductory period varies according to the credit score of the individuals and is not same for everyone. So card holders should include that aspect in all their calculations before going for the balance transfer. This is often a feature that isn’t highlighted and one has to pay special attention to the fine print to ensure it is true.
Although balance transfer is equivalent to an interest free loan, there are a lot of additional costs that come with a balance transfer card. These additional costs eat into the savings made through initial incentives. Therefore the extra costs should be as low as possible. Two common costs are the annual fees on the new card and the balance transfer fees
. The balance transfer fee is usually more than three percent, which could mean a substantial amount for a bigger outstanding balance. The annual fees should in most cases be waived off. If it is in the tune of at least 100 dollars then the total fees could easily exceed the interest saving that the customer makes, making the balance transfer offer a venture that caused a loss.
Final interest rate
Balance transfer credit cards are notorious for their interest rate hikes after the introductory period. If the interest rate is climbing steeply after the introductory period, and is even more than the current APR of the existing card that the customer is using then it advisable to stay away from the credit card. This is because; if the card holder fails to pay off the debt before the promotional period ends, the new interest rate could mean growing debt once again.