Zero percent balance transfer credit card offers are extremely tempting to people looking to consolidate credit card debt. Beware; the deals are not always as great as they seem at first blush.
Credit Card Balance Transfer Deals
The variety of issues to be considered when looking at balance transfer offers include:
- Introductory rate for balance transfer
- Length of time introductory rate remains in effect
- Balance transfer fees
- Regular APR
- Penalties and APR for loans in arrears.
Introductory Rates and Balance Transfers
Introductory rates are called "teaser rates." For example, a 0% APR teases or entices a person in debt to transfer their balance from an 18.9% APR card to the 0% APR card. The teaser rate typically lasts a few months.
After the introductory rate period is over, the entire balance converts to whatever APR the card offers. If the new card's rate is lower or the same as the old card's rate, then this may have been a good deal for the consumer.
Balance Transfer Fees
Banks make money by charging consumers fees. While it may be tempting to transfer that $5,000 debt to a 0% credit card, the fee sometimes negates the benefits. For example, a 3% fee on $5,000 = $150. The $150 is usually rolled into the total as soon as the balance is transferred, so now the consumer owes $5,150.
If the consumer is able to pay off the debt during the 0% Introductory Rate period, then transferring the balance may well have been worth it. If the consumer cannot make a substantial dent in the amount before it starts to accrue interest, that extra $150 becomes costly.
Often the rules state that the fee is, for example, $30 or 3%, whichever is higher. Some credit card issuers cap the fee at something along the lines of $75.
Always scrutinize any credit card or balance transfer offer before deciding whether to accept it to avoid being surprised by fees.
Credit Card Consolidation
Often consumers who are looking for low or 0% balance transfer offers have more than one credit card. They are hoping to consolidate by transferring as much of their debt from all of their cards onto the low interest credit card.
Each and every time a consumer transfers a balance, the transfer balance fee applies. This makes credit card debt consolidation a more expensive option.
Credit Card Interest Rates
Here is where it gets even trickier. Remember, bankers make money off of interest, fees, late charges, and penalties.
Susan has a 15.9% APR credit card. She gets a teaser offer in the mail, for 0% APR for three months. After the three month period, the card's APR is 11.9%. Even with the balance transfer fee, Susan decides this is a good deal.
The new card has a rule that if the consumer pays a bill late, the APR goes up to 21%. Susan must be diligent about paying her bills on time or this deal becomes a bad one for Susan.
Credit Card Debt Payoff
With the end goal being paying off credit card debt, consumers must compare their current credit card deals with the offers they receive in the mail and find online. Each of the above details must be compared before deciding which cards are the most beneficial and offer the best deals.
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