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2 Things to Consider Before Using 0% Balance Transfer Credit Cards

Every savvy consumer is well aware of just how important it is to manage their finances sensibly, and often shrewdly, in this troubled economic period of slim-growth forecasts and tight monetary policies. The phrase ‘downturn’ can also apply to how they can keep from making unnecessary purchases, and trimming the already tight budget to cover costs that don’t seem to shrink accordingly. Reviewing one’s credit card balances, as well as overall credit standings, is also a prudent practice, which make 0% balance transfer credit cards all the more worthy of consideration (Read: 7 Credit Cards Perfect For Those Suffering With Bad Credit).

If saving money is the prime concern for anyone these days, then transferring high credit card balances to a 0% balance transfer credit card is certainly a great way to achieve it. For instance, if a cardholder’s current rates are between 15% to 21% annual percentage rate (APR), then every $1000 owed translates into a $150 to $210 savings per year by transferring that balance to a 0% APR credit card.

Low APRs versus Low Transfer Fees

Choosing between the numerous transfer options can be a bit confusing or cumbersome, bit the upside is certainly considerable if done properly and with careful scrutiny. While the best deals are offered for the best credit ratings, the general principle is of course to acquire the longest 0% APR balance transfer offer combined with the lowest transfer fees. Most card issuers apply a 3% to 5% transfer fee for these transactions, and if the offer extends for a full year, it yields a 3% APR. If the offer is for only six months, then the APR is 6% accordingly. Some issuers apply a ‘cap’ on the fee amounts, say $75 or $99, which makes any one-time large dollar amount transfer very attractive in terms of savings.

Another great benefit of 0% balance transfer credit cards is the extended plus of 0% APR applied to any purchases made with the card, as long as the offer extends for both the transfer and purchases. Remember though, that if the 0% rate for purchases expires before the 0% transfer rate does, then this may not be a wise option, simply because monthly credit card payments are applied to pay down the balances having the lowest interest. This means that purchases would accumulate at a standard rate, at 19.99% or higher, if that portion of the offer expired, until the 0% balance transfer is paid off in full.

Short-Term Gains require Long-Term Strategies

There are also some 0% APR balance transfer offers that combine transfers with direct deposits to checking accounts, giving an individual the option of paying off other loan balances with higher rates for instance. Other issuers may require opening an account to access the best balance transfer rate offers, so investigating all the terms and requirements is a good strategy before making any decision. Also, it is best to develop a long-term plan for when the 0% balance transfer option expires. This means that any large balances that remain on the account after the 0% interest rate ends could undermine any savings accrued when the higher interest rates take effect.

Any 0% balance transfer credit card offer can be monetarily helpful in many ways, but approach the offer in terms of long-range implications. They can be of great assistance when considering a substantial purchase, a home improvement, or even a short-term loan. They are less advisable for simply making ends meet. Most 0% balance transfer offers have higher interest rates once the term expires, therefore any balances remaining will negate the savings benefit quite quickly.

The best strategy, of course, is to ensure that an individual’s budget can provide for paying off the balance on the transfer before the 0% promotional offer expires. A really good method is to set up automatic monthly payments through a bank account, timed to pay the balance off in full when the promotional offer expires. And while it may be tempting to use the 0% APR rate on purchases, remember to avoid mixing and matching purchases with transfers, since the overall strategy is to pay down the overall debt, not to rack up new ones that can’t be paid down before the offers expire.

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