Credit card balance transfers are routinely offered by card companies as a way to entice new customers away from competitors. Promotions vary, but the most aggressive offers typically include zero per cent APRs on balance transfers, for a specified length of time (the best offers are for 12-15 months). Some cards also combine rewards programs or other perks as part of this initial inducement.
Transfer offers are also used by companies when customers have low balances in their account. Companies throw promotional offers, convenience checks, and the like at customers to get them to transfer balances from other accounts. The idea is to infuse more balance into the customer's account and to get them back into the 'borrow and pay' cycle.
Using credit card balance transfers can certainly be beneficial if consumers use them wisely. Reading the fine print of transfer offers is essential. Some zero per cent offers come with transaction fees for each transfer. Additionally, timeframes vary. Borrowers need to know what happens with the remainder of the transfer balance at the end of the promotional period. For instance, at the end of a six month, zero per cent offer, does the balance return to the normal purchase APR?
Borrowers also need to know in what order credit payments are applied. Many companies slyly apply payments to the lower rate balances first, which leaves higher rate balances sitting on your account to accrue interest. This can actually lead to more interest payments over time than if you had not accepted the balance transfer, if the transfer offer comes from a card with a higher rate than the card the transfer is coming from. Beware of accepting zero per cent offers from cards that have high regular rates and that stipulate that makes apply first to lower rate balances.
Finally, consumers must be aware that while there are some good financial opportunities with balance transfers, transfer of balances do not make them obsolete. Some struggling borrowers simply move money around and take on new credit cards to transfer balances for lower rate promotions. When considering the benefits of credit card balance transfers, the borrower must think both about the short-term gain and the long-term results of a move.
It used to be that if you wanted to buy something, you either had to have the cash readily available, or you had to have something to barter with. Then came the invention of loans, which allowed people to borrow money from a lender, such as a bank, in order to purchase things they needed for their business or homes. A little later, credit cards were invented. Credit cards allow you to purchase things now, and pay for them later. The credit card business is big business in today's world. Companies make their money by charging not only interest, but finance charges. Sometimes the interest can be over 16%, which can be very difficult to pay off. This is when a credit card balance transfer can come in handy.
Paying Off Debt
Imagine, if you will, that you owe $100 on your credit card. With an interest rate of 16%, you would owe $16 in interest that month. That may not seem like a huge amount of money, until you realize that you could purchase a CD with $16 a month. If you are like most of us and charge more on your credit card, you are in for even a larger shock. If you have $1,000 sitting on your credit card with a 16% APR, you will be earning $160 a month in interest alone! Who can pay that off? If you wind up owing this amount of money, you may be thinking that it would take a financial windfall to pay off the card. There is another option, however: a credit card balance transfer. Credit card companies want your business, and they are willing to offer the moon and stars to get it. They realize, though, that most people already have at least one credit card, so in an effort to try to appeal to those people, they often offer a free credit card balance transfer if you switch to their company. A credit card balance transfer basically means that any amount you owe your current credit card company will be paid off, and will be put on your new card.
The Balance Transfer Trick
The benefit to you comes when you do the credit card balance transfer. If you choose the right company, and the right time, you can take advantage of some great deals that will enable you to get out of debt. If, for instance, you choose to do a credit card balance transfer to a company that is offering you 0% APR for one full year, you will have plenty of time to work on paying off the amount you currently owe. This is a strategy method that has been used time and time again, and the trick to getting it to work for you lies in timing and reading. You need to make sure to strike when the iron is hot: transfer your current balance when there is an excellent deal with a reputable company. Make sure you read the fine print before you do the transfer, though, so that you are able to fully take advantage of an excellent deal.
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