Save Money With a Zero Interest Balance Transfer?

Answer 1

One of the most common ways credit card companies seek out new clients is by offering zero interest balance transfers. This is a limited time offer to a potential customer to move debts from other credit card companies to the new account with the benefit of no interest for a certain amount of time. This can result in large savings on interest as many credit cards have very high interest rates. Most zero interest balance transfer offers have a duration of six or twelve months. After this time period expires, the credit card's normal interest rate applies. While this tactic is usually reserved for new customers, some credit card companies will offer a zero interest balance transfer to current customers as well.

Credit card companies exist on the general idea that most of their customers will not pay their balances off quickly. This is why they can offer a zero interest balance transfer to someone and still expect to make a profit. Most customers will be even less motivated to make extra payments beyond the minimum than they were before once they know that no interest is being accumulated. A new customer may not be in the market for a new credit card account but the idea of six months or a year of no interest may entice them to open it anyway. There is then the chance that the customer will use the credit card to make additional purchases.

Zero interest balance transfers can be a great asset to help someone in debt get out as quickly as possible. Because any payments made on the balance during the zero interest period are going straight to principal, the debt is being paid off significantly faster than the traditional method with an interest rate. The key is to not let the zero interest period become an excuse to not make additional payments. Credit cards charge a minimum payment that barely cuts into the principal on purpose so that customers will be more likely to keep that debt around for the long haul. A zero interest balance transfer can grant a temporary reprieve from high interest rates, but if nothing more than the minimum payment is contributed each month, the principal will only dwindle. Then, when the introductory period is over, the normal interest rate will kick in and the debt will start spiraling out of control quickly.

Another factor to take into account when considering accepting a zero interest balance transfer offer is the effect it can have on your credit report. While you may be simply moving the amount from one account to another, you are still opening a new line of credit. This can have a negative impact on credit rating. Having many open accounts can scare new creditors off because of the amount of credit that is available to you at any one time. Unfortunately, closing the accounts can be just as bad. It's important to measure all of these factors when considering a zero interest balance transfer offer and to determine what is best for your financial situation.