No fee balance transfer credit cards were once commonplace, but economic woes changed all that, U.S. News reports. Credit card companies began to charge balance transfer fees for transferring your credit card debt from one card to another, which could add up to a pretty penny just for the transfer alone.
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That does not mean the no fee balance transfer credit card is extinct. At least one credit card company started offering a no fee balance transfer credit card again at the end of 2011 and others may soon follow suit.
How does the no fee balance transfer credit card save me money?
The no fee balance transfer card can save a big chunk of money from the get-go, as well as a consistent stream of savings going forward. If you have a credit card with a high interest rate, for interest, you can transfer that debt to a low interest credit card without a charge for the transfer.
Additional savings can be yours if the new card to which you transferred the balance has a lower interest rate than the credit card you transferred the balance from.
Credit card companies began charging a balance transfer fee to increase their revenue, which could cut down on your savings dramatically. The balance transfer fee is either a set amount or one based on a percentage of the money you owe.
If balance transfer fee was particularly high or based on high percentage rate and you were transferring a substantial debt, in some cases it may have cost less in the long run to stick it out with the existing credit card with a higher interest rate.
For instance, let’s say you wanted to transfer a debt of a $5,000. Even if you found a low interest credit card that would make monthly payments more attainable, a balance transfer fee of 6% of your debt would automatically set you back an additional $300 just for moving the balance due.
When there are no fees for the transfer, and if the balance transfer credit card provides an introductory period where no interest is charged for an introductory period, your debt may decrease provided you pay it off before the introductory period expires.
How can a no fee balance transfer credit card backfire?
Paying attention to the credit card’s interest rate is a must to help ensure your plan to save money while paying off your debt does not backfire. Even if no fee is involved for the transfer, moving your debt from a credit card with the same interest rate as the existing credit card may not make much sense.
A balance transfer credit card may try to lure you in with a low annual interest rate or even 0% interest for an extended period, but you must also note when that extended period expires.
Even if you enjoyed no interest for the introductory period, you may get slammed if you do not pay off your debt by the time that period expires, the California Department of Consumer Affairs notes.
Some credit cards may charge interest not only on the remainder of your debt, but also on the interest you would have paid during the introductory period. Such a setup encourages you to pay back the money quickly by penalizing you if you do not.
What other charges could be involved with balance transfer credit cards?
Credit card companies may charge a host of other fees that could add to your debt, according to the Federal Reserve. Even if your interest rate is lower on the balance transfer card, additional fees can add up and may end up costing you just as much or more than you owed with the higher interest rate.
Simply applying for a credit card may come with an application fee, followed by an activation or set-up fee for establishing your new account. This may be followed by a membership, participation, or annual fees, which are all the same under different terms. Such a fee is an annual amount you are charged just for having that particular credit card.
Next up on the fee list are penalty fees for not following the terms of the agreement. If you go over your credit limit, you may be charged an over-the-limit fee. If you do not make timely payments, you may face a fee when your credit card payment is late.
Fees may also be charged for using special services, such as taking a cash advance or opting for debt protection in the form of insurance on your purchases. A cash-advance fee may be charged for withdrawing cash against your credit limit, while insurance options may include debt suspension or debt cancellation in the event you become unemployed or disabled and unable to work and pay off your debts.
Reading the fine print very carefully is the only way to know what fees apply to each particular credit card, including no fee balance transfer credit cards. The no fee balance transfer may be a great selling point, but you should make sure it is not the credit card’s only selling point. Don’t be lured in by the promise of instant gratification without first checking out if that gratification is sustained over the long haul.
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