Don’t Fall into Balance Transfer Trap

Wednesday, August 1st, 2012
Updated: August 1st, 2012
The content is accurate at the time of publication and is subject to change.

There are lots of credit cards that can help you struggle with a financial burden. And it’s probably not a secret for you that the best of them are balance transfer credit cards.

But please don’t grab this offer right away no matter how good it is.

It’s not a secret that balance transfer credit cards can save you pretty much. These credit cards are similar to average credit cards which allow cardholders to borrow. However, they also allow cardholders to transfer outstanding debt from one credit card to another new credit card with lower Annual Percentage Rate (APR). Here is the main point of saving and possible trap!

From one hand, balance transfer is an advantage of lower interest rates. But from the other hand, it is a time bomb.

Let’s take a look at the promotional APRs on balance transfers. Most balance transfer credit cards come with 0% APR for a certain period of time, 12 month on average. After that the balance transfer APR rises to the variable regular rate, which could be 20% or even higher, depending on the card and customer’s credit history.

So, how does it work? Credit card issuers attract you with a 0% “long lasting” intro APR bait and then catch you when you stumble through credit managing. Even tiny mistake from your part may turn to big money for them.

During a promotional period, the credit card issuers hope that you make just minimum payments. Thus in a year you will slightly reduce your credit balance and they will nail you to the ground with their sky-high interest rate.

Remember, they are highly experienced in playing waiting games and they’re thinking marathon, while you may be obsessed with the spirit.

However, your goal is different from the balance transfer credit card issuers. They want you to carry a balance beyond the promotional period, while your aim is to pay off the entire balance before the APR resets. If you accomplish this feat, you will pay nothing (use no fee on balance transfer credit cards to save even more money).

But if they accomplish their goal, which often happens, you will pay a lot more money than they save you.

So when choosing a balance transfer credit card, be sure to do the math and set up a payment plan to extirpate your debt before the interest rate resets.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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