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The 0% balance transfer is a technique used by many credit card companies to get people to switch from one lender to another. These deals can either be advantageous to the consumer, or may have some additional factors that are less attractive and may be buried in a new credit card contract. Benefits of this technique depend on each individual offer, and consumers thinking about switching from one credit card company to another should make sure to read the lengthy fine print contracts that accompany a new credit card offer.
In a 0% balance transfer there are a few things that occur. A borrower uses the new credit card immediately to transfer loans from one or more credit cards to the new card. Depending upon amount of credit offered, this is not always possible. If credit limits on the new card are lower than balances owed elsewhere, a borrower may not be able to completely transfer a balance from one card to another. Moreover, if the new card limit will only just cover the balance transfer amount, it could leave the consumer without access to credit for several months until the balance is paid down, and any new charges on the card are unlikely to be assessed at 0% interest.
There are several ways in which a credit card company might offer a 0% balance transfer. The zero interest may be part of an introductory period, which could mean that after a certain amount of time, usually six months to a year, any remaining money owed on the balance transfer will begin to accumulate interest. Sometimes the zero interest on the transfer remains in effect for longer, and can give borrowers more time to pay off their credit card debt without paying for more interest.
Some credit card companies do make a little money on a 0% balance transfer by charging a transaction fee for the transfer service. This is something to look for on cards with these offers. At other times, new card interest rates might be much higher than a person is currently paying, or there may be other fees like annual or sign up fees, and high late payment fees that make a credit card unattractive.
On the other hand, if borrowers find they simply aren’t making more than interest payments on amounts owed, a card that offers comparable interest rates, similar fees and a 0% balance transfer may be an excellent way to start paying down debts. This is especially the case if zero interest will remain in place for a couple of years. A longer repayment time with no interest charged can help a borrower begin to address debts without having to pay exorbitant interest rates and may be to the consumer’s benefit.
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