Today, credit cards are a huge business and acts as significant revenue for many companies, banks included. There is little wonder why credit card companies are going all out to get new credit card users all the time, even to the extent of desperation.
There is a fortune to be made off credit card finance charges alone. The annual percentage rate (APR) on credit cards range from 11% to 16%. Even high risk investments today find it difficult to give returns beyond 16% a year. Naturally, it's not going to be to be easy trying to pay off your credit balance. Especially when you are able to pay off the interest and it keeps adding on to your principle. But that, appears to be exactly what the companies are looking out for, although bad credit was a down side to that strategy.
With customers with good credit getting scarce in the market, credit companies are out to poach customers to their side; and that is how the balance transfer schemes came to be. These usually involve zero percent interest rate offers for customers who transfer their balances from one card to another.
Needless to say, an obvious benefit to zero percent interest rate is the interest free loans. But besides saving money on the interest free period, you can actually make the best use of the offer to catch up on your loans.
During the offer period, you should try to pay off as much debt as possible so that when the offer period expires, you will have much less balance and therefore less to pay on debt interest. The money that originally goes into the paying off the interest can easily pay off at least 10% of your principle. And if you're conscious about paying off your debt, you should be able to reduce your debt enough more. Subsequently, your APR should be much lower and the money saved can continue to be used for paying off more debts each year.
Besides paying off your debt, some advance players even make use of the offer to make money out of the opportunity. They leverage on the zero percent interest rate and maximise their financial potential on the borrowed money. This is of course, taking a high risk with their money, since they could possibly rack up a lot more cost if their plan falls through.
While this all sounds good, it is most to get a clear understanding of what are the terms and conditions attached. Not everyone qualities for the zero percent interest rate offer, and getting and invite to sign up for one isn't a criteria for qualification. You could sign up for the offer and end up not enjoying any benefits at all. Even if you qualify for the offer, it could easily lapse if you default on payment or breach any of the term and conditions listed in fine print.
Normally it is most advisable for you to transfer the balance with the highest payable interest amount to the zero percent interest card to maximise your savings, and that usually refers to your largest credit balance. But note that it takes a while for the transfer to be processed and you may still need to be paying off your interest to the old company for a while.
It may sound like there's nothing in it for these credit card companies. But the truth is, most people out there have very poor financial diligence (no one knows why), and that is how much of America is a debt nation today. Credit card companies are really betting on you not paying off your balances and leave them as it is. So when the offer period ends, you end up paying them the same amount or even more.
As with all your money, be careful with your options. Read all the terms carefully and make sure you understand what it really means. Ask if the terms are unclear; don't assume how you understand it is right. And most of all, pay off as much debt as you can, don't live off paying interests and never own anything for real. Read our website to learn more.