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Zero Balance Transfers
Author: Michael Smith
Website:
Added: Fri, Aug 25, 2006 19:29:23
Category: Credit
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Zero balance transfers are a popular feature offered by credit card companies, especially as an introductory rate. People use them when they get new credit cards, because their old cards have rates that are too high and are crippling them financially.
Typically, new credit cards will have a lower rate than the one that you are paying, at least for the first six months, to lure you in and get you to use their card instead of the old one. They use zero-balance transfers as an incentive to get you to switch your old balance to their card at 0% annualized percentage rate (APR). This is definitely a good deal for you, especially if new charges also carry a low APR.
The problem is that it can be too good a deal, and its easy to get further and further into debt - until you can't get any new credit cards with 0 balance transfers or with a low APR. As a result, you'll have to start paying a high rate for your credit card, instead of the low rate you've been paying, and also pay lots of money to transfer your balance.
This could happen to anyone. Your company "down-sizes", you get laid off - but the mortgage payment and utility bills still have to be paid (on top of the credit card debt you've accumulated). Even if you take temporary employment, unless you can immediately replace your original income you find yourself dipping into your savings, or relying more heavily on your credit cards.
As the minimum payments grow, you find yourself seeking out other low APR cards with 0 balance transfers to cover your higher interest rate debt. This is OK as a very short term strategy (a couple of months), but it doesn't take long to begin racking up debt faster than you would think possible.
Before long, you find that you can't qualify for a new 0 interest balance transfer credit card. You can no longer juggle your credit card debt around! Now you're on a quick downward slide.
You're falling very quickly in to heavy debt. Even when you find a new job that adequately replaces your old income, the damage has already been done. Six years later, you're only just emerging from debt that you accrued during that brief period.
A 0 balance transfer credit card can be very useful, but it is no substitute for responsible spending! The better strategy is to force yourself onto a very strict budget. Limit your spending to the essentials, and allow only an occasional (inexpensive) indulgence.
About the Author:
Michael Smith is a Certified Financial Planner from Baltimore, Maryland
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