Credit Card Balance Transfer DealAnyone who reads financial advice blogs or forums, or those cheesy "Top Get Out of Debt Tips" online articles will have been advised more than once to try and do a balance transfer to a lower interest credit card. This way you pay less money in interest and more on debt repayment so you can pay off your credit card debts faster and save yourself some money. This is good advice, but there are some potential traps you need to be aware of.
It is impossible to make money on zero interest or even very low interest rate cards, so why do the card companies do it? Understand their motivations and strategy and you will be much better equipped to beat them at their own game. How exactly do they plan to profit?
Zero percent balance transfer offers
It is obvious that the last thing they want or expect is for their zero percent balance transfer offers to be their only credit card business! A good technique for examining any credit card balance transfer deal is to forget "what is in it for me" for a moment, and instead spend some time making sure you understand all the fine print and "what is in it for them?" The balance transfer best deal for you may be very different to the balance transfer that means the best deal for the credit card company! For example, the credit card balance transfer deal may have restrictions on the minimum amount you may transfer. It will almost certainly only allow a fixed time for repayment before there will be a rate change (i.e. an interest rate increase). Eventually the new credit card will revert to a more market-based APR, possibly even higher than the present rates you are paying. You need to know exactly when there will be an increase in the interest rates after the introductory period, and ideally how much this will be. Another thing that the typical credit card balance transfer deal is notorious for is that the lower interest rate applies only to the initial amount you transfer. After you make your balance transfer you may find that if you then need to use your new card for other purchases or payments, the interest charged will be as high as or higher than your previous credit card provider. I was recently offered a balance transfer deal at 2.9% However, the cost of the convenience checks to make the transfer was 3% of the total. This meant that my real interest rate would be 2.9% PLUS 3% = 5.9%. With the annual fee my real rate was over 6% so this was NOT the best balance transfer deal available. You also need to understand exactly what will happen if things go wrong and you miss a payment or two. In most cases you would pay late fees and penalties, or even a higher rate. These charges may wipe out anything you gained in making the transfer. Most of all, carefuly calculate how long it will take you to pay off your complete balance. Be conservative. Will the magic zero interest rate apply for the entire length of time you need? Sometimes, the credit card balance transfer deal gives with one hand and takes with the other. What I mean is the short term benefit of the lowest interest possible (ideally zero!) may be offset by an annual fee, various processing fees such as the cost of convenience checks, and the risk of high late fees and penalty interest rates if you run into some bumps with your repayment schedule. Discover details at Wikipedia: credit cards balance transfers. Balance transfer best dealSo should I get a credit card balance tranfer deal?
Just please be aware of the traps described above, and don't play balance transfer musical chairs. The ideal outcome is to get rid of debt, not just keep shifting it around. As always, be prepared to do some homework and make careful credit cards comparisons to make sure you get the balance transfer best deal. The best balance transfer deal will have these features: 1. No fees Often balance transfer fees are when you first open your new account. Take advantage of this! Transfer as much of your higher rate balances immediately instead of waiting. After the initial transfer it is common to be charged a percentage of the balance transfer as a fee. 2. Clearly defined introductory period Make sure this is absolutely clear and that the low/zero introductory rate applies for a definite period such as 6 or 12 months. 3. Specified increase
Nobody can predict interest rates with certainty so this may be difficult, but try and find a deal that tells you the rate that will apply at the end of the introductory period. Obviously it is better if this is standard rate that is still competitive - not something really savage like over 20%.
This is an issue all in itself so read up on How To Raise Credit Scores and the FICO Score Chart to make sure you are well prepared to get the most out of any credit card balance transfer deal.
Return from Credit Card Balance Transfer Deal to Eliminate Credit Card Debts
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