0% Balance Transfer Credit Cards - Too Good to be True?

 This article describes 0% balance transfer credit cards and whether or not the offers promise more than they deliver.

On the surface, 0% balance transfer credit cards are incredibly enticing, especially if you have outstanding credit card balances. But there are a few details you need to understand before taking the balance transfer credit card plunge. 

Some consumers seem to get in trouble overnight with credit cards.  Seemingly broke and deeply in debt, some desperate card holders are constantly on the lookout for a quick fix for the credit problems.  A 0% credit card balance transfer might appear to be the perfect solution.  

Many among us desperately jump at such offers without much forethought. 0% deals on balance transfers or purchases might seem irresistible even to the most credit worthy person.  But especially if you have a large outstanding card balance (or balances), a 0% credit card balance transfer will seem especially lucrative. And to no surprise, there is no shortage of these type of balance transfer offers currently available in the marketplace. 

Regardless of your credit circumstances, you should exercise caution and thoroughly investigate all aspects of any credit card offer that you consider. Despite the obvious attractions of a balance transfer credit card, it is worth giving a second thought before you cut up your old credit card to make room in your wallet for the new one. Companies often fail to clarify the fine print, hiding those rather unpleasant details which could cost you dearly in the long run.

Let us start with a very typical credit scenario.  Imagine having a $10,000 outstanding balance on a credit card with a 10% annual APR, translating to $1000 in finance charges on a yearly basis. On the other hand, imagine securing a credit card that offers you 0% on balance transfers for the first year of membership.  Transferring your card balance to a 0% balance transfer offer would cut down your annual interest expense by $1000. Exciting, isn’t it?

But did you bother to check what the interest rate would be after the introductory interest-free period? The rate might turn out to be significantly higher than your existing card, and you do not want to be caught on the wrong side of a high APR.  Forewarned is forearmed. You will need to plan ahead – and not just a day or two before the interest-free period comes to an end.  Some consumers might be surprised to discover that when an introductory APR offer expires that the rate of interest can revert retroactively to an APR of 23% and beyond.  If you do not pay off your balance systematically and end up with a large balance when the introductory offer expires, many times consumers are stuck paying out an outrageously high APR because they did not pay down their card balance at all.  So above all, make sure to plan on paying off that balance before the introductory period expires or you may regret it.

0% Balance Transfer – Some Pointers 

When considering balance transfers credit cards, help yourself by asking these questions:

- What will be the interest rate once the initial introductory 0% balance transfer period is over? 

- Is it comparable to my current APR or will it be significantly higher? What is the net difference? 

- Particularly if you plan to carry a card balance over time, what will be the long-term net effect of the difference in APR's? 

- Do I want to get into the habit of switching from one 0% balance transfer card to another? 

If your current credit card offers a better long-term ongoing APR than the new one, it makes more sense to stick with what you’ve got, especially if you have the means to pay off your card balance without incurring large finance charges.  A balance transfer card most certainly has its own pros and cons but if you wish to use balance transfers to your advantage, make sure that you understand the net benefits of the card over the long term.