Should I Take Advantage of a 0% Interest Rate Balance Transfer?
We’ve all received those tempting offers from credit card companies offering a 0% interest rate on balance transfers. Sounds enticing, doesn’t it?
Well, credit card companies are betting on it. Don’t get me wrong – 0% balance transfer offers are a potentially excellent credit choice; but they may also come with terms and conditions that could turn around and bite you if you don’t stay on top of things.
How do they Make Money?
It only makes sense that a credit card company can’t make anything off of customers who take advantage of 0% interest rate offers, right? Wrong! The credit card company is betting on the fact that the majority of credit card holders will be unable to pay off their credit card balance during the 0% promotional rate. In other words, the credit card company may not make anything off of the credit card holder at first, but it is only a matter of time before they start making money.
How Long does the Promotional Rate Last?
Which brings me to the next point: 0% credit card balance transfer rates are rarely for the life of the loan! Upon further inspection, you will find that most credit card balance transfer offers are only good during a short, promotional period, which is typically between six and 12 months. At that point, the credit card’s interest rate will likely significantly jump.
In fact, some credit card companies may raise interest rates upwards of 18 percent once the promotional rate has expired. And this is where reading the terms of the credit card balance transfer offer becomes so important.
There are many credit card holders that accept 0% balance transfer offers, only to ignore the length of the promotion. And then, before they know it, they have been paying a 15 percent interest rate on their large balance!
What about Balance Transfer Fees?
Many of us are so excited to receive a 0% balance transfer offer that we automatically accept the offer without looking further into it. The two things that you should take special notice of include the interest rate once the promotional rate has expired, as well as the balance transfer fee.
Huh? A balance transfer fee? Yep, this is another way credit card companies make their money. Many companies charge a fee to transfer a balance, and this fee often ranges between one and three percent of the balance of the transfer. Most credit card holders find that this fee is reasonable, considering the money they will save on interest rates, but it is definitely something to look further into when accepting a 0% balance transfer offer.
The bottom line with 0% balance transfer offers is that they can certainly prove beneficial to credit card holders who carry a balance on their cards. However, it is still important to work hard and pay off the debt as to avoid future finance charges. Check the balance transfer’s terms, including the promotional rate and the balance transfer fee, so that you can make the most informed decisions regarding your credit.
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