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Research: What's a 0 Balance Transfer Credit Card and How Does it Work? -

These are hard times and extremely harder for those of us with credit card debt. This is precisely why 0 balance transfer credit card offers are all the rage these days. They are schemes that give you the option to transfer credit balances to a different credit card provider with a low or zero interest rate for a specified period of time.

Why would people not want to get balance transfers? On average, most credit cards in US alone carry 15% APR. That is a lot of money's worth of interest for one credit card user to pay off.

Now that we have your attention, let us discuss how balance transfer cards operate. On face value, 0 balance transfer cards work on the premise that a credit card user is allowed to use a different card with low or zero interest to pay off the debts incurred by another credit card with higher interest rates.

Sounds too good to be true? Well, yes it is.

The rule of thumb here is that credit card companies, like any other enterprise, are out to make money. So how do credit card companies make money out of this?

First, there is the transfer fee. This fee unconditionally comes with every other balance transfer. It is likewise a sure fire way to make up for the lost revenue of offering you their 0 balance transfer scheme. These charges usually amount to some 3 percent of your outstanding balance from the other card; or, in some cases, a fixed rate issued by the company. The higher your balances in your previous credit card are, the higher your rates will be.

Before the credit crunch, many companies used to have caps or a maximum chargeable amount for the transfer charges. Nowadays, however, it is very difficult to find a credit card that still retains these caps. So, before affixing your signature on the dotted line, ask about the availability of a ceiling charge.

Another way credit card companies earn money from 0 balance transfer plans is in the event that you make new purchases on the new card. In most situations, the credit card you transferred your balance to will charge your new purchases with very high APRs. Unless you do not want new debts coming up, refrain from using your credit cards during the payment period.

Will it work for you? It will, but there are conditions. One is that you have to be a responsible credit card user, which means paying your bills on time. The other is that you have to be a disciplined spender. After all, you save money when you do not spend it.