0% Balance Transfer Offer Part 1

A 0% balance transfer offer? Wow! You think you have it good when you receive a pre-approved credit card application in the mail with such a balance transfer introductory rate. You're right. On the surface, indeed, such an offer is a heaven-sent. Dig deeper, though. Before you sign up and apply for the card, understand the following:

The balance transfer offer has a deadline.

Such balance transfer offers have a deadline and you need to get your balance transfer application approved before the deadline is over. Take note: your balance transfer should have been processed and APPROVED by the time the offer's expiry date rolls in. Otherwise, your balance transfer would NOT be in the introductory rate that has been specified but in the standard or regular balance transfer rate attached with your credit card product.

Different credit card companies have different balance transfer application time allowances so be sure to check with your credit card company. Moreover, do remember that a balance transfer application is a separate and distinct process from credit card application and approval. After you get approved for your credit card, you still have to apply for a balance transfer.

A 0% balance transfer introductory rate has a fixed effective period.

No credit card company would offer you 0% balance transfer rate for life so expect that when you receive a balance transfer offer with a 0% special interest rate, this rate would last only months. The length of time during which you'll have the special rate will depend on your credit standing as well as your payment history with the credit card company - if you're already a card member.

The effective period of the special 0% balance transfer rate usually ranges from 3 months to 15 months. When your offer says 0% balance transfer interest rate up to fifteen months, however, never assume that you would get 15 months of 0% interest rate on your balance transfers. It just means that you MAY get up to 15 months; the actual number of months to which your account will be entitled to the 0% rate will still depend on the credit card company’s assessment of you credit worthiness.

It’s best NOT to use a balance transfer card for making purchases.

If you took up the credit card company’s 0% balance transfer offer, it would be best for you if you were to keep the card exclusively for balance transfers and not use it to make purchases.

The explanation for this lies in the fact that balance transfers are considered distinct from credit card purchases. As such balance transfers and purchases made with the credit card will have distinct applicable interest rates and usually, credit card companies will apply your payments towards the portion of your account with the lower interest rate. If your purchase rate is higher than your balance transfer rate (this is probably true – after all, there’s nothing lower than a 0% interest rate), your payments would all go to your balance transfer balances and not on the purchases that are incurring interest rate charges.

The separation of balances and their implications will be explained in much greater detail in another post. For now, suffice it to say that making purchases using the card which you have used to pay off other credit cards and loans is NOT a wise move. If you do so, you’d probably be doing yourself a big disfavor and cheating yourself out of what could have been a good deal.

You still have to pay a monthly minimum.

Even if you have 0% interest rate on your balance transfers, you still have to pay your monthly minimum dues. Each credit card company may have a different way of computing monthly minimum dues. However in cases where there’s 0% interest rate, it’s usually a standard minimum amount (say $15 or $20) or a certain percentage of your balances (say, 2% or 4%) whichever is higher.

Do not mistake 0% interest rate for no minimum payment required or you’ll lose your special rates.

You lose your special rate when you default.

When your payment is late, when you don’t make a payment or when the payment you have sent your credit card company through ACH or wire transfer is denied by your bank, you’d lose your 0% balance transfer rate. It takes only one instance of default – then your special rate will be gone.

If your credit card company gives you another chance, you may get your special rate back. However, this is something that you should not count on. However unfair you think such rigid or unyielding terms are, they are nonetheless part of the credit card agreement that you have accepted when you signed up for the card.

You lose your special rate when you go over your limit.

You have a credit card limit and you can only process balance transfers as long as you have credit to use up. Do not insist that your credit card company process a balance transfer that would put your over the limit; that would be senseless as going over limit may lose you your 0% balance transfer rate anyway.

You do have a credit limit.

When your credit card company says “pay off your loans through a balance transfer,” it’s actually saying “pay off other credit card accounts but only up to your credit limit.” Thus, it’s crucial to wait until you get approved for your card and until know your exact credit limit before you process a balance transfer. If you don’t, all you may accomplish with your credit card balance transfer is a mere shifting around of balances owed – not a debt consolidation or a balance transfer in the strictest sense of the term.