0% balance transfers are a great option for most people with credit card debt. However, in certain situations, a 0% APR balance transfer can be a bad idea. While paying no interest for a year may be alluring, if you have single digit rates on your current credit cards, you may be better off sticking with your current credit card.
A recent Smart Balance Transfers visitor wrote in with a perfect example of a bad balance transfer situation. Here is an excerpt from Dennell’s email:
“I have 2 credit cards with high balances right now [$20,000]. I have good credit and am thinking of transferring the 2 cards ( discover interest rate of 3.99 on balance transfer and 10.99 on purchases) until 2014 and (bank of america interest rate of 6.24 on both) to a citibank card offering 0% to june of 2011….The interest rate after the offer is 11.24 %”
Dennell has great rates right now, especially given that the average credit card interest rate is currently above 14%. And, because of 3% to 4% balance transfer fees, he would only be saving about 2% during the 0% period. When the 0% period expired, he would be paying an additional 5 to 7 full percentage points on his remaining balances. Yes, he might be able to do another transfer after the first 0% period expired, but that is a risky bet that could backfire.
Anyone in a situation similar to Dennell’s should avoid the temptation of a 0% balance transfer. Dennell has particularly good rates, perhaps the best I’ve heard of in recent months. However, if your rates are 8% or below and you know you will need at least two years to repay your debts, skip the balance transfer and work on repaying your current credit card company.
Unfortunately, Dennell is one of the few people with the luxury of great interest rates right now. Most of us are paying double digits, and some are paying 20% or more. If you fall into this category, than a 0% balance transfer will likely save you hundreds of dollars over the course of a year.
If, for example, you have an $8,000 balance on a credit card with a 14% interest rate, you can save close to $1000 with a 0% balance transfer. In this case, 0% balance transfers are a great idea. However, if you have low rates like Dennell, balance transfers are not a good idea for you.
-Jeffrey Weber
For more information on current balance transfer credit card offers visit the main section of Smart Balance Transfers, where you can compare 0% deals and apply online.
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