In 2004 Americans paid $412 billion dollars in finance charges to the credit card companies. If you contributed to this astronomical amount, you might be considering a 0% interest balance transfer to knock down those monthly payments. You also might think that this is a simple choice, that of course you should opt for a card that does not charge interest over any other card that does. Well, before you take up credit-card hopping as this month’s attempt at exercising, there are a few things you should be aware of when it comes to balance transfers.
Balance Transfer Fees. Many balance transfers can cost you a charge of 3% to 5% of your balance. Although many cards will cap this charge at around $50 to $100, some do not, and your charge could very well negate your savings from the lower interest rate.
Universal Default Clause. This policy is practiced by many credit card companies and you need to be aware of it. Under this policy if the cardholder is late on any of their bills, cell phone, electric, car, what have you, the credit card company can instantly take away the promotional interest rate and charge a higher rate.
The Fine Print and the *. Be sure to scrutinize the fine print and watch out for any conditional symbols such as the asterisk*. Many zero % interest offers are only given to candidates who qualify, namely those with a clean credit history. Be careful when applying under these terms as you might not qualify for the zero % interest but instead end up with an even higher interest rate.
Additional Purchases. Find out if new purchases qualify for the zero% interest as this will have important ramifications. If new purchases do fall under the 0% interest then you can rest easy. If they do not, you must be aware of the consequences. Let’s say you transfer $5,000 and then make additional purchases of $500. Any payments you make will go towards the $5,000 first and the $500 will instead accrue interest at the higher interest rate until the entire $5,000 is paid. That $500 might end up costing you more than you saved with the balance transfer. **It is important to note that the balance transfer fee usually counts as a new purchase.
But do not be discouraged, balance transfers are a powerful fiscal tool, if used properly. Follow these steps and you are sure to beat the house.
Destroy The Old Card. Do not give the temptation a chance. Like the arms of an ex-lover you are trying to leave, you do not want to be wrapped up by them…again.
Destroy The New Card. If your main goal is to pay down the balance, cut the new card as well and you will not have to worry about interest charges on new purchases. Simply pay down your debt at zero interest.
Pay All Of Your Bills On Time. Do not fall prey to the universal default clause. Pay all of your bills (phone, auto, mortgage, etc.) on time and you will retain your zero % interest.
Call The Credit Card Company. When your promotional rate comes to an end, before transferring to another card, call your credit card company and tell them you are going to transfer your balance if they cannot give you a low interest rate. It will not be 0%, but it might be much safer then jumping to a new card and repeating this precarious process.