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A
balance transfer is an option offered by many
credit card issuers which enables the card
holder to use their available credit from one card
to pay off the balances due on one or more other
cards. Usually the
interest rate on the amount borrowed is lower
than the rate of the cards that are being paid off
by the balance transfer.
Balance transfers are really nothing more than a
consumer loan made to a customer who is already
pre-qualified by the lender because of the credit
card relationship that exists. Since the card
issuer is already open to exposure for the maximum
amount of the card holder’s
credit line anyway, it makes financial sense
for the card issuer to entice the cardholder to
run their balance up as high as possible.
A balance transfer offer is the perfect way to
entice the card holder. Most balance transfer
offers will come with an artificially low
introductory interest rate, such as 1% or 0%, for
a fixed period of time. After that time period the
interest rate will rise to whatever was permitted
by the terms of the offer.
Some offers will come with a fixed interest rate
for the lifetime of the balance transfer payment
period, subject to the usual penalty clauses for
late payment, etc.
Although some card holders receive fee-free
balance transfer offers, depending upon their
credit experience with the card issuer, as well as
their overall
credit score, most balance transfer
transaction require the card holder to pay a fee.
This fee could be a flat-rate or a percentage of
the amount borrowed. Typical offers these days are
running 3% of the amount transferred per
transaction, or $5, whichever is greater. Some
offers cap the transfer fee at $50.
Consumers who pay close attention to the fine
print, and who are diligent about paying the
balance transfer balance off during the
promotional interest rate period, can reduce their
monthly expenses by transferring high interest
credit card balances to the lower interest card
offering the balance transfer option.
Consumers who do opt to take a balance transfer
should not run up more debt by using the
credit cards that the transfer was used to pay
off. This defeats the purpose of paying off the
balance to begin with and will quickly place the
debtor in a position where they are no longer able
to make their payments.
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