What is a balance transfer? If you have racked up debt on a high-interest credit card, transferring the balance to a card with comparatively low interest rate may sound like an enticing way to save cash, but it is not simple as it sounds.
Transferring is not the same as repaying. When you use a balance transfer card, you are in essence, paying off credit card ‘A’ with new credit card ‘B’. The only real, solid, definable benefit from a balance transfer is you can save money over the long plunder if you pay back the previous amount you owed and you pay it at a lower interest rate, including all your costs. If you have reached to the highest limit on multiple credit cards, cannot keep payment dates and minimum payments straight and often accumulate late fees, putting all your credit card debt on one card might prove a better option. You will have just one card to keep track of and one payment to make each month. It is not just balances from other credit cards that can be transferred. You may be able to move loans for cars, appliances, furniture and other monthly instalment payment to a no interest balance transfer credit card using checks from the bank that issues the credit card. It is not quite as simple as making a swap from a high interest rate to a low interest rate anymore. You will be charged a balance transfer fee, which is calculated as a percentage of the total amount you are transferring. Earlier, transfer fees were capped. Today, on most balance transfer cards, there is no cap, so the more you transfer, the bigger the fee. This type of cards attract you with an extra low annual percentage rate (APR) between 0% and 5%. That teaser rate, however does not last forever. After a certain period, often six months to a year, generally more, the interest rate will increase.
Zero interest balance transfer cards were widely available earlier, but became rarer and less generous during the recession. They are common again, but the best terms are available only to customers with an excellent credit history.