Credit card debt can be incredibly difficult to pay off.Not only can new purchases continually offset monthly payments, but interest charges can also consume a large portion of each payment.
Thankfully, promotional 0% balance transfer offers can give customers a break from interest payments, but this tool must be used carefully to maximise its benefit.
What Is A Balance Transfer?
The credit card business is highly competitive and banks are always looking for ways to attract new customers. One of their more popular strategies is to offer a promotional financing period in which the account holder is entitled to a 0% APR for a pre-defined period on purchases, balance transfers, or both.
These offers almost always require a balance transfer fee (with the current exception of the Chase Slate no fee balance transfer card) which is usually between 3-5% of the amount being transferred. Once approved for a promotional 0% APR balance transfer offer, card-holder’s must typically initiate the transaction soon after opening an account, at which time the balance transfer fee is added to the cardholder’s balance.
How To Take Advantage Of These Offers
First, cardholders should look for the most favourable promotional offer available. Key factors will include the length of the 0% promotional period, the size of the balance transfer fee, and whether or not the 0% rate applies to new transactions as well.
The duration of promotion financing periods can range from as little as six months to as many as 21. The longer the promotional period lasts, the longer the cardholder has to pay off his or her balance before interest begins to accrue.
Also, those who will be using their card to make new purchases should strongly consider an offer that also includes a 0% purchase APR, as using a card with high rate to run up more debt can all but defeat the purpose of getting a 0% credit card in the first place.
Other Factors To Consider
A balance transfer offer is best used in conjunction with a cardholder’s realistic plan to tackle his or her debt before the offer expires. Unfortunately, the banks have concluded that borrowers are rarely able to achieve this goal and will end up paying interest on their debt after the promotional period expires.
It is this calculation that allows banks to offer these deals so frequently. Knowing this, cardholders should make every effort to pay their debt in full, rather than to conduct a series of 0% APR balance transfer transactions in perpetuity.
By skillfully utilising a promotional balance transfer offer as a part of an overall debt elimination strategy, cardholders can take advantage of the competitive market for credit cards in furtherance of their own financial goals.