In the world of finance, credit cards offer a variety of balance transfer offers to new or existing customers on a regular basis. There is often a fee involved for making the transfer but the person owning the card will receive a very low interest rate for a specified amount of time. Often the reduced rate is provided for 6 months or a year.
Why Balance Transfers Are Not a Good Idea
If you have a balance on a high-interest credit card and you want to reduce the interest, you can accept the balance transfer offer you have received to get a lower interest rate. The problem is that most people that are already dealing with a balance on a high rate credit card aren’t able to manage their money well. This is what the banks are counting on.
When you make a balance transfer you’ll have to pay a fee to do it. Often this is 2% or 3% of the current balance that you want transferred. The problem is that if you don’t pay off the balance that has been transferred within the specified timeframe, you will have to pay a higher interest rate after the 6 months or year has expired. This is usually equivalent to the amount of interest you would have to pay for a cash advance.
The banks are counting on the fact that you may not be able to pay off the card in time and will end up having to pay the higher interest rate. If the balance that has been transferred is very high, you may end up with interest charges that you really can’t afford.
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