They say nothing in life is for free, so what should I be careful about with those 0% credit card balance transfer offers?
Top answer provided by:
David Vanden Berg
The major trap with these offers is in the conditions. They are usually interest free for a period (sometimes 3 or 6 months) and only on the amount transferred over from an existing card. After this honeymoon period the cards go to a high interest rate sometimes over 20% per annum.
If you are disciplined and pay it off in time you could save money. However most people don't and end up in a cycle of relying on expensive credit cards.
Although these offers appear enticing it's important that you understand all the details and have a plan to repay the debt and be disciplined in doing so.
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Comments2
""The Banks returns on equity for credit cards can be as high as 40.25% (as reported in the consumer action law centre “Credit-Card-Interest-Rates-Submission”) and so these are a very profitable, if a balance is not paid off in the interest free term as was acknowledged many don’t, the banks now hold a very lucrative asset." Can you say Banks are scum?"
Rotton 16:05 on 28 Oct 16
"Interestingly enough your questions was pretty much directly posed to the heads of the banks during a recent senate inquiry into credit cards. Matthew Comyn (Group Executive of Retail Banking Services at CBA) stated that the experience with 0% balance transfers both in Australia and around the world is that “customers increase their debt and many do not pay off the debt before the end of the offer period”. The Banks returns on equity for credit cards can be as high as 40.25% (as reported in the consumer action law centre “Credit-Card-Interest-Rates-Submission”) and so these are a very profitable, if a balance is not paid off in the interest free term as was acknowledged many don’t, the banks now hold a very lucrative asset. That is the trap to be aware of, if you apply for another card to transfer your balance without decreasing your credit limit on your existing card you have the possibility to increase your total debt. Another trap to be aware of is that the interest free rate usually only relates to the transferred balance and if you use the card (as many do) then you will pay interest on that spending until the entire balance (not just that spending) has been repaid. When evaluating the different debt consolidation and interest rate reduction strategies that are available to you it is important to first look at how the debt was accumulated. If it was a one off unexpected and unavoidable expense that you have had difficulty in recovering from then things like this may be beneficial to you. If the credit card balance you are considering transferring has just accumulated over time then you are more likely to fall into the trap of increasing your total debt and it would be far more important to look at your budget and cash flow management strategies before debt consolidation. I spend a lot of time working through budgeting and cash flow management including debt consolidation strategies with my clients so if this has not answered your question feel free to contact me to discuss it further. "
Peter Gehlert 11:58 on 28 Oct 16