Are 0% Balance Transfers Too Good to Be True?

By: Robert Alan

Broke, in debt, and on the lookout for a quick fix? In that case, the offer of a 0% credit card balance transfer is sure to have caught your eye. Many among us jump at such offers without much forethought. 0% deals on balance transfers or purchases seem irresistible, don't they? Well, hereis a word of caution: before investing in this new credit card don't forget to check the interest ratebeyond the interest-free period. Get wise, before this apparently brilliant balance transfer plan gets the better of you.

The Good Life With 0% Credit Card Balance Transfer

If you have an enormous outstanding credit balance, these 0% credit card balance transfer will seem all the more lucrative. You can have your pick of companies, with many out there offering this scheme. If you play your cards right, you might even be able to save hundreds of dollars on the interest you pay through a 0% credit card balance transfer. And you can stop worrying about your mounting debt ... at least temporarily.

Reality Check On 0% Balance Transfers

Despite the obvious attractions, it is worth giving a second thought before you cut up your old credit card to make room in your wallet for the new one. Companies often fail to clarify the fine print, hiding those rather unpleasant details which could cost you dearly in the long run.

Here is a textbook scenario for you: imagine you have a $1,000 outstanding balance on a 10% APR credit card. In other words, in a year the interest will accumulate to $100. On the other hand, assume you have a credit card that offers you 0% on balance transfers for a period of 6 months.

If you transfer your balance, it would cut down your annual interest by $50. Exciting, isn't it?

But did you bother to check what the interest rate would be like after the six-month interest-free period? The rate might turn out to be higher, and you don't want to be caught on the wrong side of the tracks with this information. Forewarned is forearmed. You need to plan ahead and just not a day or two before the interest-free period comes to an end. If you were to find that the rate of interest reverted to 25% beyond the free period in the above example, you would end up having to pay $125 as interest for 12 months, instead of just $100!% Balance Transfer Some Pointers The next time you consider shifting loyalties as far as credit cards are concerned, help yourself byasking these questions:

- What will be the interest rate once the initial six-month 0% balance transfer period is over?

- Is it close to my current APR or significantly higher? What is the net difference?

- What will be the long-term fallout?

- What are the total costs of the new card? Will I end up shelling out more with this card over the long haul?

- Do I want to get into the habit of switching from one 0% balance transfer card to another?

Remember, if your current card offers a better long-term rate than the new one, it makes more sense to stick with what you've got, especially if you have a tendency to carry card balances on your cards. A balance transfer card has its own pros and cons and if you wish to use balance transfers to your advantage, then you must consider the nature of these "double-edged sword" card options.

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