Credit card balance transfers are simple in premise. You transfer a balance from one credit account to another. However, the benefits, goals, and results of transfers can often be quite different from one product and one opportunity to another.
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.
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