Balance Transfers - Buyer Beware

Posted by Nick Niesen on October 29th, 2010

Today there are many credit card companies out there competing for your service, because of this, they all are finding unique incentives and appealing rewards to get you to apply and use their credit cards. Many of these are centered on Balance Transfers. However, if you use these incentives to try to prosper you may find yourself in more debt.

Many credit card companies today are offering 0% balance transfers. This has helped many people that are overcome with debt. It works very simply. If you have a standing balance on one of your credit cards that charges high interest rates you can transfer that balance to a credit card that offers 0% on balance transfers. The new card will give you 0% interest for a set period of time on the balance transfer. Normally, this time period is for 3 months, 6 months, 9 months, 12 months and sometimes as long as 15 months.

With 0% balance transfers credit card offers, you will be able to save hundreds of dollars in interest charges. However, you should be aware even with this great opportunity there are pitfalls. When you are reading the fine print of credit card company, be sure that you are really applying for a credit card that offers 0% on balance transfers instead of 0% on just purchases. If you get these confused, you could be in a lot of trouble when you transfer your balance from another card.

In addition, even if you do secure a 0% balance transfers offer you may not receive 0% on any of your purchases. This would mean that anything you purchase with the card would have the normal interest rate.

As an example, if you $6,000 on credit card at 15%. You decide to do a balance transfer with a credit card that allows 0% on balance transfers for 6 months. You will save quite a bit of money in interest by transferring the money to a 0% balance transfer credit card. Without thinking about the consequences, you make a card purchase and then dutifully pay back the $100. But the $100 will be applied to the $6,000 balance transfer instead of your new purchase. You will then have $5,900 left on your original card balance with 0% interest and $100 at the 15%.

However, if you pay close attention to the fine print you can find a credit card company that offers 0% on balance transfers and 0% on all purchases for a certain amount of time. Just remember, that if you do not pay off the debt prior to the end of introductory special you will then be paying interest on the money once again. The idea is to use 0% balance transfers and pay off the entire debt prior to the end of your 0% interest rate. You can even use another card that has a low APR for smaller purchases and only use the 0% balance transfers for larger card balance transfers.