Is a 0% Balance Transfer All It's Cracked Up to Be?
Many people have heard the siren song of the 0% credit card balance transfer. The trick is to decide whether or not such an offer can work out for you, without entirely losing your head. Follow these tips and watch your step, because this path might not be as tempting as it seems.
Crunch the Numbers
When you look at offers like this from big banks and credit card companies, it comes off as pretty enticing. After all, what could be better than paying no interest for several months on your debt? However, most credit card companies are not in it for your benefit. A discounted rate on a balance transfer is a hook, and you should confirm that you understand what is intended by the person holding the line.
The most obvious disadvantage is a balance transfer fee, which is typically a small percentage of the total. Take the bills you are considering transferring, and figure out how much interest you are paying on them each month. Make sure that the 3-5 percent that the credit card company may charge for the transfer is worth the savings you will have.
Beware the Fine Print
While you are contemplating biting the hook, you may feel a tug encouraging you to read the fine print. Fine print is small because the big banks and credit card companies hope you will not actually read it. You must, because hidden inside it might be some unsavory elements, such as:
- Annual Fees (whether you carry a balance or not)
- High-Interest Rates (on new purchases or cash advances)
- Variable Introductory Rate Periods (that are not specified until after approval)
- High Penalties (for late or missed payments during the teaser rate interval)
- High-Interest Added Retroactively (on the debt after the introductory period has concluded)
Some offers will not have these pitfalls, but many do. This is why getting a credit card from an institution you trust is so important.
Make a Bigger Debt Payoff Plan
Balance transfers can be a way out of the debt marshes, or they could sink your ship, if you are not careful. Too many people who transfer their debt from one card to another to save on interest end up running up debt on the old card again. What this means in practical terms is that you could end up with the twice the credit card debt, and only some of it is interest-free for a short time. If you worry that you might not be able to keep the old account open and empty, you should only engage this kind of program as a part of a larger plan to get out of debt. This way, you can take advantage of the benefits of lower interest to help you double down on your principal debt.
Getting a balance transfer might feel like an island oasis, but you don’t want to get caught in quicksand. When you consider all the information before you and pick the offers that are best suited for your debt-free plans, you will better enjoy the smooth sailing.
Manatee Community Federal Credit Union is Here to Help.
Each individual’s financial situation is unique and readers can talk with a credit union representative at 941-748-7704 ext. 125 when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.
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