Dangers of Using 0% Balance Transfer Offers
- 0% Balance Transfers -
There is a reason why a credit card is willing to offer you such a screaming hot deal - they want your business because they know they can probably make money off you. Credit cards, like all businesses, keep metrics on their cardholders and are able to distinguish how much they can make from each person based on their demographics and prior spending history, it’s with this information that they feel confident offering deals like low interest rates on balance transfers because they know they’ll come out ahead in the end. So, what are some of the dangers of 0% balance transfers?
The first danger is that you’ll do something stupid, that is, you’ll do something other than put that money in a savings account offering a guaranteed interest rate and protection of your principal. Some stupid ideas include spending it, putting it in the stock market, putting it in a mutual fund, or trying to get more for your money than the bank’s interest rate. It’s tempting… but don’t do it!
The second danger is that you mis-read the offer and take one with a transfer fee, sometimes a 3% fee, that cuts into your earnings significantly. If you’re only getting 4% on your money and you have to pay a 3% fee, that means you’re only really earning 1%… a 1% that gets eaten away by the taxes you’ll pay on the 4% earnings. So, read the offer carefully and make sure that, if it has a balance fee, that balance fee has been waived for whatever offer you’re applying for. To avoid this, use sites like Zero Fee Balance Transfer as a starting point (double check those rates as they might change but it’s a decent starting point).
Finally, the third danger is that you forget to make a payment or continue to carry the debt after the promotional interest rate period. If you forget to make a payment, the rate will usually increase to whatever the regular rate is. If you forget to pay off the debt and the promo rate drops, you run the risk of cutting into your earnings by paying interest. So, be diligent and you won’t run into this problem.
Those are the major dangers of using a 0% balance transfer, be aware of them and you likely won’t fall prey to them.
