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The Risks Of Balance Transfers
Balance transfer credit cards with a low introductory interest rate may seem like a great idea on the surface, but for many Canadian consumers, they are turning out to be a little bit more than what they had bargained for.
It seems like a great idea to open a balance transfer credit card, and it can often be difficult for a consumer to see any potential dangers. After all, taking the balance of a high rate credit card and moving it to a low rate card can only be a good thing. However, if you look a little closer there are actually a large number of reasons to exercise extreme caution when it comes to credit card balance transfers.
Limited Time Offer
The first thing to look at is whether or not the low APR offered by the balance transfer credit card is permanent or for a limited time period only. The majority of these balance transfer cards only offer the reduced rate of interest for a short introductory period.
The length of such introductory offers can vary depending on the credit card issuer, but they can usually last for anything from 3 months to 24 months. If you are unable to pay off the transferred debt before the introductory period ends you may well find yourself faced with an interest rate which is even higher than that of your original card.
When Will The Transfer Occur?
Another little known piece of information regarding credit card balance transfers is that the process is not always an immediate one. In some cases it can actually take several weeks to process a balance transfer from one credit card to another.
During this time the consumer may end up having to pay the monthly payment on both the old credit card and the new balance transfer credit card. In addition to this, many balance transfer credit cards also charge an additional balance transfer fee which is usually a percentage of the total balance being transferred from one credit card to another.
Ask Your Current Lender
It is well worth asking your current if they have a lower interest card available before opening a balance transfer credit card with a different bank. Often a bank will be more than willing to offer you a lower rate card in order to keep your business. In addition to this, the majority of banks will waive balance transfer fees for transfers which occur between credit cards which are both issued by them.
Reading The Fine Print
It is also important to look very carefully at exactly what the balance transfer credit card is offering. The low interest rate might only apply to balance transfers and any purchases may end up having a higher rate of interest applied to them than they would have had on the old credit card.
Look for a card which offers a low rate across the board on all transactions including balance transfers, purchases and cash advances. It is also important that you limit the number of balance transfer credit cards that you open. If you apply for credit from a number of different lenders in quick succession, the lenders looking into your credit history can actually have a negative impact on your credit score.
Is A Balance Transfer The Best Option?
Nancy Hughes, president and CEO of the Canadian Bankers Association, says that, "Most Canadians pay zero interest on their credit cards because, according to Statistics Canada, seventy three percent of us pay off our balances each and every month."
This means that Canadian consumers who fall into the twenty seven percent of consumers who carry a balance on their credit cards need to decide if they will realistically be able to pay off their debts during the introductory period of low or no interest offered by a balance transfer credit card. If the answer is yes then opening a low rate balance transfer credit card is a fairly good option. However, if the answer is no, then the consumer may wish to look at some other options including applying for a loan from the bank to "purchase" your credit card debts.
In conclusion, using a low interest balance transfer credit card can be a useful way to reduce your credit card debts by cutting the amount of interest you pay. However, it is important to be wary of the potential risks of these cards so that you are not caught off guard by hidden fees and charges.
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