0_ on a Balance Transfers Will Not Last Forever by cmlang


									by: Peter Kenny

Have you ever been attracted to a credit card because it promises you an outstanding interest rate
that seems just too good to be true? Most of us have at some stage jumped for one of these
attractive offers. There are a growing number of credit card providers out there that will offer
you 0% deals on either balance transfers or purchases, and sometimes they just seem too good to

Particularly if you have a large outstanding credit card balance that you are currently paying a lot
of interest on, these offers will be very tempting. In fact, many 0% balance transfer offers will
save you hundreds of pounds on interest that you would otherwise have had to pay on your credit
card balance. But no matter how attractive such offers may appear at the time, you should only
ever take on another credit card if you have taken the time to review your finances and are
satisfied that it is the right financial move for you at this time.

To look at a typical example, suppose you have one thousand pounds outstanding on a credit
card that charges 10% APR. This means that over the course of a year, this balance will cost you
100 pounds in interest charges. Now suppose you find a credit card that offers you 0% on
balance transfers for six months. Well it is pretty obvious that 0% is better than 10 and if you
were to take up this offer, assuming there are no balance transfer fees, then how much will you
have saved over the six month interest free period? The answer is 50 pounds. However, what will
the interest rate revert to once the interest free period has come to an end? This is something you
should be thinking about before you opt for the credit card, and not when the interest free period
is about to expire and everything is more urgent. Suppose, for the sake of our example that the
interest rate reverts to a rate of 25%. This means that over the next six months you will pay 125
in interest.

While this is a very simple example, it illustrates an important point when it comes to 0%
balance transfers. In the example above if the customer had stayed with his 10% card, he would
have paid 100 in interest over a 12 month period. In the same period, by opting for a 0% balance
transfer for six months that then reverted to 25%, he ended up paying 125.

The point to remember is that just because a credit card offers you 0% does not mean it is the
best deal out there. Look at the long term rates that the card will offer you, and compare these to
the rates you are already getting from your credit card. If your existing rate is better than the
rates that you will get from the new card once the introductory offer expires, then maybe you
should remain loyal to the card you have.

So while this is going on you will not be spending on the new credit card, but you will be safe in
the knowledge that you are saving the interest payments on the old debt.

This article was posted on April 14, 2006

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