There are many companies and financial institutions making a fortune from instant approval credit cards as well as rewards “low interest” and balance transfer credit cards. With the average rate of interest being just above 15%, it’s no wonder that more and more financial institutions are making their own credit cards. A lot can be earned from customers who have perpetual credit problems, which is why the balance transfer credit card was created. This article will explore what balance transfer credit cards are and their pros and cons, allowing you to better decide whether it’s something that could help you address current or future credit problems.
Balance Transfer Credit Cards persuade prospective customers to transfer their current credit card’s balance over to theirs, the incentive being that they will be given a “grace period” where their rate of interest is significantly below the average. With grace period interest rates of 0-2% per annum, it’s no surprise that these are an ideal option for credit users drowning in debt. Balance transfer credit cards may be marketed as a trust-earning device, to allow the client more time to pay off their credit card when the balance gets transferred but is it really that clear cut?
Pros
Consumers who are willing to save up and adamantly want their seemingly never-ending credit card repayments to stop can use balance transfer credit cards as part of a strategy to significantly reduce or pay off debt all together. The grace period on these credit cards lasts from six months to a year, more than enough time for a diligent debtor to even out his or her bank balance. There is also a loophole with this strategy: essentially, you can have a perpetually low rate of interest by continuously opting for a new balance transfer credit card when the grace period on your current one runs out. This way, you’ll be paying minimum or zero interest, giving you more time to pay off your debts.
Cons
Of course, if things were this easy, then world debt would be decreasing, yet what we’re seeing is that it’s still a prevalent financial crippler that lurks in the back of everyone’s mind. If you do choose to continually change balance transfer credit cards for an “eternal grace period” albeit with different companies, the danger is to forget to close the previous account, thus incurring some residual interest at average or higher rates. The clincher is also usually the fees in the fine print associated with transferring the balance across from your old credit card. This can work out to being equivalent to paying off your grace period interest over several months, especially if the transfer fee you’re paying is a certain percentage of your balance. Decent companies will cap off this fee at $50-$100, not-so-decent companies will charge the fee with no overhead cap.
Balance transfer credit cards aren’t really a solution to debt problems. More so, they are a single component when it comes to paying off your debt. The biggest factor of course is you, cutting back on needless expenses, showing self-discipline to not make impulsive purchases and being willing to do this for up to a year, while consistently pay off your debt.
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