If you are much of a personal finance and credit card junkie as I am, you have probably read a bit about the debate that is going on around balance transfer credit cards. Some people say they are the best thing since sliced bread and others say they’re the worst thing since the invention of nuclear weapons! But, what is causing this big debate?
It’s The Promotional Interest Rates
If you decided to apply for a balance transfer credit card, chances are, you will choose one that offers a 0% promotional interest rate. Once the promotional period expired, your interest rate on your outstanding balance would increase to the standard interest rate for the card. But is that unfair? Some are saying that this is a classic “bait and switch” scam. Based on the same ideas, wouldn’t no interest till 2014 promotions at a furniture store or car dealer also be a bait and switch scam? If we look at promotions for balance transfer credit cards as well as the application, we can clearly see that, these cards are indeed fair deals!
Information Included In Balance Transfer Promotions And Applications
There are several laws in place that require certain things to be placed in promotions and applications for any finance based product, including credit cards. These laws state that before an application is accepted for a particular lending product, the consumer must have been informed of the following:
- All Interest Rates That The Client May Have To Pay – This includes promotional, standard, cash advance, default and any other type of interest that you would have to pay on any particular credit card.
- All Fees The Consumer May Have To Pay – This includes balance transfer, annual, foreign transaction, over limit, return check and any other fee that you would have to pay on any particular credit cards.
- Payment Expectations – This includes how your minimum payment will be calculated, when it will be due and how it can be sent.
If before consumers can apply for balance transfer credit cards and related products, they must be informed of all of this information, it’s impossible for these cards to be a bait and switch scam.
Should I Take Advantage Of Balance Transfer Credit Cards?
The answer to this question really depends on what you are looking for out of balance transfer credit cards. If you are looking for a way to relieve financial hardship, chances are, this is not the option for you. However, if you are looking for a way to reduce your interest rates or consolidate multiple payments into one, easy to manage account, they may be the option for you. Here are a few things that should help you decide if this is the best option for you or not:
- Good Credit Is A Must – The truth is, the balance transfer credit cards that are worth having are created for a specific group of consumers. In most cases, this group of consumers has good to excellent credit scores and a couple thousand dollars in debt to transfer. Without good to excellent credit scores, you will not qualify for this option.
- You Must Have A Good Revolving Debt To Income Ratio – The higher your debt to income ratio, the more of a risk you are to lenders. Even if you have pretty good credit scores, with a debt to income ratio of over 10% chances are, you will either not be approved for balance transfer credit cards or you will be approved for incredibly small credit limits.
- Balance Transfer Credit Cards Are Not Generally A Debt Relief Option – If you are looking for true debt relief, chances are you are experiencing a financial hardship. If this is the case, balance transfer credit cards are just not the option for you! If this is the case, I would strongly suggest considering one of the options listed in “DIY Alternatives To Credit Card Debt Consolidation“!
The Bottom Line…
The bottom line and reason I wrote this is to clear the air about balance transfer credit cards. In all reality, they are not a bait and switch scam, they are great financial tools. However, it’s important to take the time to make sure that they are your best option. If they are, it’s important to use them properly. If used improperly, as with any tool, they will only cause damage!