The Bottom Line On 0% Balance Transfers: Why 0% Doesn’t Always Mean $0 Posted on May 23, 2012

U.S. consumers incurred $48 billion in credit card debt in 2011 alone according to a recent Card Hub study. For many, this now means finding the best ways to pay down what they owe.

In attaining debt freedom, consumers have a familiar ally: zero percent balance transfer credit cards. These are undoubtedly enticing for many with high rate loan balances. But, are those offers really as good as they sound?

While a zero percent introductory rate can be an effective way to avoid paying interest and help pay off credit card debt more quickly, there may be strings attached to the attractive offer.

Melissa Manning, Credit Union of Southern California’s (CU SoCal’s) Community Education Manager, offers four potential drawbacks consumers need to be aware of when considering transferring their balance to a credit card: 1) balance transfer fees, 2) introductory rate expiration date, 3) late payment rate hikes, and 4) carrying balances over 30 percent of the credit limit.

1. Watch Out for Transfer Fees

Before you begin basking in the benefits of avoiding those sky-high interest rates, be sure to consider if there is a one-time transfer fee. These can be costly—ranging up to five percent of the total balance transferred. Balance transfers can still be a good deal for those carrying a large balance at a high Annual Percentage Rate (APR), just be sure to factor in this expense when determining the best card offer.

2. Examine the Expiration Date

Keep an eye on when your introductory rate will expire. Some introductory periods are three months, while others stretch up to 12 or 15 months. By aiming for a longer period, you allow yourself more time to pay off the card before the deadline at lower monthly payments. Regardless of how long the introductory period is, however, card issuers are not likely to alert you when it’s about to end. It’s up to you to make the move.

If you do plan to move funds again though, your credit score could also be affected by frequent inquiries into your credit history. So, in addition to transfer fees, balance transfers can also cost you by lowering your credit rating.

3. Be Mindful of Possible Penalties

Credit card companies may revoke consumers’ zero percent introductory rates as a result of even a minor misstep, leaving you with a hefty rate hike. Be sure to review the card issuer’s terms and policies and consult online resources that independently review many credit cards, such as CreditCardConnection.org and NerdWallet.com. And, when possible, schedule automatic payments to avoid any risks of late payments.

4. Pay Attention to Your Percentage of Available Credit
Consider keeping your balance at no more than a third of the card’s limit. Carrying a balance close to the maximum may negatively affect your credit rating.
The Bottom Line

Zero percent does not always equal zero dollars. But, consumers who are mindful of both the many benefits and possible pitfalls can achieve debt freedom.

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