Credit cards are among the most widely-employed payment instruments currently in existence and their use has become synonymous with the modern convenience. They can be used in retail stores, over the internet and over the telephone, nationally and internationally, irrespective or local currency. Credit card payments are fast, allow payees to avoid carrying large sums of cash with them (since the vast of retailers provide credit card payment facilities), and are more secure than debit card payments – to name but a few advantages. For consumers, credit cards are (or at least used to be, before the advent of the aptly-named credit crunch) the expression of a widely-adopted lifestyle: they provide quick access to short-term loans for consumers, who in turn repay all or at least some of their balance on a monthly basis. However, unless handled with extreme caution, credit card debt can easily pile up and become a significant stress factor, especially for those cardholders who abuse their available credit and fail to make timely payments and end up with increasingly large balances on their credit cards.
One aspect which credit card issues don’t like to advertise (and why would they?) is that credit comes with (heavy) costs. It’s as simple as that: besides the borrowed amount, the cardholder must also pay interest, arrangement fees as well as other types of mandatory costs, all solicited by the lender within the concluded credit agreement. Other costs are optional, with the borrower being able to choose whether or not they are included within the agreement. In addition to being simply an expression of modern convenience, taking out credit is a significant responsibility – one which must not be taken lightly, particularly in a world where your credit report and credit score are your business card to the world, and can influence anything from the interest rate on your mortgage to your ability to get a good job. In general, most credit experts will readily agree that taking out a new credit card, particularly when a consumer already faces mounting credit card debt, is not the best thing to do – with one exception: the so-called balance transfer credit cards, also known and referred to as 0% balance transfer credit cards.
What are balance transfer credit cards? Typically, they are cards which are designed to allow a consumer to transfer a high-interest credit card balance to a credit card which has a lower interest rate attached – which will presumptively allow for savings to be made in finance charges. Basically, a balance transfer credit card will work as follows: a consumer is offered the possibility to transfer his existing credit card balance to a different card issuer, which charges an introductory APR of 0% (APR is the Annual Percentage Rate, the numerical expression of the total cost of credit calculated as an annual rate; it represents the total cost of borrowing for a credit card loan). However, the 0% APR will only be maintained for a limited, pre-define amount of time, after which it will be adjusted to a higher level, potentially higher than the APR charged for the consumer’s initial credit card balance.
The credit transfer
A balance transfer credit card can prove a very effective payment instrument, with one very obvious condition: the switch has been made to a 0% balance transfer credit card, the cardholder must pay off the outstanding balance quickly, within the interval in which 0% APR is charged – an interval which, as mentioned before, is strictly defined beforehand. If he can carry out all his card payments on time, the cardholder can potentially save hundreds, maybe thousands of dollars in interest charges. As tempting as this may sound, however, there are a number of things cardholders should know before they start shopping around for the best balance transfer credit cards on the market.
One thing that must be born in mind is that many credit card issuers will impose high transaction fees for consumers who decide to switch to a balance transfer credit card. Therefore, prior to making the actual switch, consumers should investigate the overall amount of the applicable fees. Typically, in order to transfer your balance to a 0% balance transfer credit card, you will have to face a transaction fee of 3% or even 4%; there are such things as no balance transfer fee credit cards, but in order to track them down, some serious and patient research is in order. The fact is, balance transfer credit card offers are usually designed to attract consumers whose credit scores and credit history rank from good to excellent. Not everyone who wishes to take out a balance transfer credit card will effectively qualify for such a card with very low introductory rates. It is therefore important to know what introductory rates will apply to your particular case prior to making the initial transfer. Also, keep in mind that even if you do qualify for a balance transfer credit card, the terms and conditions imposed by banks and credit card companies are not permanent: as many of us will have painfully found out by now, credit card issuers reserve the right to alter crediting terms and interest charges at any time without much prior notification.
The credit transfer
If you have decided that a 0% balance transfer credit card is the way to go for you, here are a few suggestions to keep in mind while browsing through various offers. First of all, before any definitive option is made, sit down in front of your computer and do some thorough comparative research. Make a list of the most attractive offerings you’ve encountered and compare the length of the intervals for which the introductory 0% APR applies. Also see if any annual fees apply to each balance transfer credit card and check if the introductory rate applies to the initial transfer only or whether it applies to all the transfers carried out over the introductory period. Other elements which can be used to determine the best balance transfer offering for your particular case have to do with the amount of applicable transaction fees (if any), the amount of the APR once the introductory, low-interest period has ended, and whether the introductory interest rate applies to purchases as well as balance transfers.
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