Like any corporation, credit card companies have the goal of making money for their shareholders. Lenders are not in the habit of making business offers that don’t benefit them financially, and balance transfers are one method that usually ends up putting money in their coffers. One secret to keep in mind is that credit card companies that offer balance transfers, bank on customers maintaining balances after the balance transfer period has ended.

Potential pitfalls in balance transfer details:

Fees For Balance Transfers

At one time 0% balance transfer fees were common but today they are virtually nonexistent. Currently, a 3% one-time transfer fee is the norm for the industry. Although this figure may seem insignificant, if you transfer $10,000, the fee will be a hefty $300.

Be on the lookout for a card that caps the transfer fee in the range of $50 to $125. Without this cap, you may end up paying an exorbitant fee as in the example above. Carefully compute the math before you sign any transfer offer. It would not be prudent financially to make a balance transfer if the fee charged is more than you will end up paying in interest with your present credit card.

Future Variable Interest Rates

Credit cards often use teaser introductory periods where they charge very low interest rates on the transfer balances. This time period can range from 6 months to 18 months. However, the low interest rate does not apply to new purchases or use of the convenience checks during this period. It is important then, that you do not use this card (or sparingly at best) until you have paid down your transferred balances.

If you do use the card for a new purchase, you may be shocked to find out the interest rate can be as high if not higher than the current cards you use to make purchases. The point here is that the balance transfers are only efficient in helping you reduce your debt if you put the card away in a drawer and not use it to make further purchases.

Payment Allocation Order

Because credit card companies are in business to make money they have figured out another way to make additional funds on your balance transfers. If you make two balance transfers to a card, and the APR on one card is 9% and the second card has an APR of 18%, when you begin to pay down the card, the payments will first be applied to the 9% card. The 18% card will continue to accrue interest and will be paid off last.

APR After Introductory Rate

Because balance transfer rates are low, it is best to pay your outstanding before the introductory period has ended. If you have an outstanding balance pending after the intro period expires, you may be in for a shock as to just how much the APR jumps.

Fees For Late and Overdraft Payments

You could be in for another shock if you make any late payments or have an overdraft on your card. Your 0% interest can be gone after just one late payment and you could be back to paying even higher interest rates than you were before the balance transfer was made.