As the average annual rate of interest charged on credit cards goes above sixteen per cent, it is becoming increasingly difficult for the customers to pay the balance in a short time. As the interest is added on the principle, the balance gets fatter quickly. The credit card companies want to snatch this opportunity to get more and more business. They offer a zero per cent balance transfer card to new customers. Well, it’s a good opportunity but if you are not smart, you may end up with the worst financial disaster at the end.
When you get an offer to transfer your old balance, it generally carries the lucrative zero per cent interest benefit. So you can open your new credit card account and transfer all your old dues there. For a few months, and if you are lucky may be for one full year, you get the benefit of zero per cent interest. That means you get an opportunity to pay off the balance without any additional interest charged on it.
This offer is definitely lucrative but you should handle it with extreme care. First of all, you should study minutely the terms of the agreement for such balance transfer. If there is a transfer fee, or if there is any annual fee, you should check it out. Normally there should be a cap on the transfer fee. If there is none, you may end up paying a huge amount towards transfer which will take away most of the saving in the rate of interest.
But the most important precaution about such balance transfer is – you should never spend a single dollar on your new account.
This offer should be taken as an opportunity to make you debt free. If you make any additional purchase, it will carry a very high rate of interest. As per the standard practice of any credit card company, when you pay money towards your balance, they will adjust it first towards the debt which is carrying lowest rate of interest. Naturally, your new purchase which is subject to a higher rate of interest would remain unpaid until your previously transferred balance is fully paid off. The interest on such ‘newly created’ balance and penalties are added on it will quickly make a very huge outstanding once again! Gradually you will lose all the benefit which you obtained by transferring your balance.
This rule will apply to every single purchase you make on your new credit card. So my advice would be – never carry that credit card in your wallet! Just concentrate on paying off your old balance. If you are required to spend, keep another credit card with you having a small available credit.
Once you pay your old balance in full, just cut that credit card and be happy!