0% Balance Transfer Credit Cards: Watch Out for Pitfalls

Having a credit card with a high APR is not profitable. Most part of your payments goes for clearing your interest charges, so it can take years to pay off your credit card balance in full. The best solution of this problem is to apply for 0% balance transfer credit card. It will let you shift high-interest credit card debt onto a plastic with a lower interest rate. So you will be able to freeze your interest charges and pay off your outstanding credit card balance sooner. However, there are some pitfalls you should be aware of to make a beneficial deal.

1. Introductory rates. Unfortunately, 0% APR doesn't last forever. It is just an introductory offer provided by credit companies to attract new clients. Typically, zero rates last up to 12 months, but you can find special offers which come with an introductory period of up to 15 months. Afterwards the APR will rise. If you're going to transfer your credit card balance, try to repay it in full before the interest-free period expires.

If your finances will not stretch far enough to eliminate your balance within the introductory period of time, then look for credit cards that provide moderate APR afterwards.

Take care to make all repayments on time and not to max out your credit card limit. If you don't adhere to the rules, your 0% deal will probably be revoked and you may be switched to default interested rates.

2. Negative payment hierarchy. It means that the least expensive credit card debt (such as a zero APR balance transfer) is paid off first.

You carry more expensive debts on your credit card (usually purchases or cash advances) for a longer period of time, so they can accumulate interest.

For example, you transferred your debt onto a 0% APR card and then bought furniture with the same card. Under the agreement, your APR on purchases is 12%. First of all, you will need to pay off the amount of money you transferred because it has lower APR. So you will accumulate 12% interest on the furniture purchase until you have paid off the balance transfer.

If you want to avoid this problem, look for a credit card that offers 0% on both purchases and balance transfers. Pay attention to Citi Platinum Select Card
from Citibank - it offers zero rates for up to one year on transferring your debt and making purchases.

Another solution of this problem is to have separate credit cards for balance transfers and purchases. For example, you can apply for a lucrative rewards credit card that will let you benefit from your spending because balance transfers don't accumulate rebates.

3. Balance transfer fee. Most balance transfer credit cards come with a fee. It can be a flat rate, for example $20, or a percentage of the amount you will transfer - from 1% to 5%. The first variant can be more beneficial if your balance is large. For example, your balance is $3000. If your credit card comes with 1% balance transfer fee, you will need to pay $30.

Having a balance transfer fee is not a reason to get disappointed. It can be a reasonable price to pay in comparison with how much money you'll save on lower APR within the introductory period of time. Just look for credit card offers that provide the most suitable terms and conditions.