The 0% credit cards are back with a bang

Saturday, October 2nd, 2010

Now that the 0% credit card is back, it is but natural for many of us to think of opting out of our regular credit cards (with 18% or over) to 0% credit cards. It is a clever ploy and one has to deal with caution before jumping in to these alluring offers and doing the balance transfer. Each of these transfers could cost a part of that balance which could easily amount to the minimum due for two months. As a rule, one must make sure that the fine print is read before making the switch.

While many feel that this batch could actually, one must be aware of the penalty factors as well. If a person`s credit scores are good (720 or more), their mailboxes would be filled with offers from various issuers. Some issuers offer 0% APR`s on fresh purchases as well as balance transfers for a period of about 21 months.

Now that the economy is back on track after the 2-year recession and unemployment, the delinquency rates on credit card debts has gone down by a whopping 26%, which is a good sign. Almost 70% of the card issuers have offered low introductory annual percentage rates on new purchases, while balance transfers are heading north.

While just a year ago, customers who maintained almost zero balances were turned down by companies, there seems to be a massive turnaround since that time. This was in fact the flip side to maintaining low or zero balances as the companies hardly made any profits out of them. During this phase, interest rates were hiked and credit limits were sized down. However, with the change in scenario companies such as Smart Money, hope that the borrowers will carry forward the balance beyond the initial period (introductory) and spend more.

In a nutshell:

Promotional periods longer (21 months compared to 12 months previously).

Transfer fee (3%-5%) where the transfer fee is less, the annual fee is more.

Caps on balance transfer fees have been discarded by most issuers.

Most of the 0% credit cards would end up with around 15% after the introductory period.

APR`s can be raised any time by the issuer. Since it is mandatory, the card holder would be notified via mail and the standard rules apply wherein, rates on existing balances would remain the same, but change with subsequent purchases (made after 14 days of receiving the mail notification).

A grace period of around 60 days is granted before the penalty kicks in. This would make the 0% offer meaningless.

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