As the recession has somewhat stabilized and credit card reform laws have been completed, the climate for lending is improving and more credit card offers are becoming available. There has even been a resurgence of the so-called “teaser rate” cards, which offer an attractive 0% interest rate, typically for a year, on balance transfers and purchases. These cards got many people into debt trouble during the boom times, but if used properly, they can be a tool to improve your financial situation. Below we will look at a few ideas to get you on the right track with these cards.
Watch Out For Balance Transfer Fees. Most banks offering these cards will charge three to five percent of the amount transferred up front. What this does, in essence, is put interest on the amount but charges it up front. So if it is a 0% card for 12 months and they charge a 4% balance transfer fee, it is really like having a 4% APR. Moreover, if it is only 6 months of 0% then that up front fee becomes the equivalent of an 8% APR. Pay attention to the fee and the length of the 0% period.
Create a Realistic Plan for Using the Credit. These cards are a great way to pay down debt but only if you can do it within the promotional rate time period. After that, these cards tend to have a higher APR and whatever debt you transferred to it could end up in a worse situation. Think about what you could realistically pay off within the year and do not transfer more than that. If there is an unavoidable expense, such as medical bills, this is also a good way to spread out the payment but do not view the card as a license to spend under any circumstances.
Read The Terms Carefully. Many of these offers are not fixed and will have varying terms based on your credit. For instance, if you see language like “0% for up to 1 year” or a promotional rate “as low as 0%” be wary, because chances are you will get lesser terms than this.
Watch Your Credit. Taking too many balance transfers in a short period of time can make it look like you are playing hot potato and lower your credit. Also be careful of having too much of your available credit tapped out, which can also hurt your score.
If you take care to avoid these pitfalls, 0% promotional rate cards can be a great way to take out a large chunk of debt. With solid planning and follow through, they can help get you towards financial freedom.