Balance Transfer Credit Cards

Balance Transfer Credit Cards: The new debt consolidation tool
If you’re tired of having too many credit cards and unpaid debts – it need not be a worry anymore thanks to balance transfer credit cards. Balance transfers offer a great way to consolidate your liabilities and pay off debts while saving cost. Sounds too good to be true? Well, it is true.

How it works
Balance transfer refers to a way of transferring outstanding balances from existing credit cards to another card that offers a lower interest rate. Usually there will be a balance transfer fee involved that ranges from company to company. However, most people have saved a lot of money by doing balance transfers. One can even transfer outstanding amounts of existing loans to another credit card.

The "catch" in balance transfer credit cards
Just like all good things, here too, there is a catch involved. Usually, the lower interest rate is for a promotional period. After this period, the balance transfer rate rises to the standard market rate – which can be quite high. Therefore you need to ensure that you pay off all debts within this promotional period itself, to avoid paying the higher balance transfer rate later. Usually these balance transfer schemes will also include a promotional period of ‘free’ purchases – which is often referred to as a 0 APR (Annual Purchase Rate).

What determines the rate and promo period?
There are several factors that determine the balance transfer rate as well as the promotional low interest period offered. Some of these factors include:

Credit history: Banks will typically scrutinize a person’s credit history before deciding on the promotional scheme offered. Since usually balance transfers are carried out by people who already have existing debts, the comparison is superlative in nature. Therefore having an abnormal number of credit cards or too many outstanding loans may invoke suspicion from the credit card companies.
Default APR: The promotional 0 APR period is only valid if the card holder pays on time and within the due date. Even in cases where the payment is made on time but cannot be honored due to insufficient funds or some other reason, the APR goes to the default market rate – which again is quite high.
Overstepping credit limit: This is another reason because of which the balance transfer rate may go back to the standard market rate.
Less than minimum due: Not paying even the minimum amount due within the due date can result in revoking the balance transfer zero percent rate.
Factors affecting default rate: Even the default rate of the balance transfer or the purchases is determined based upon several factors such as:
- How long has the account been open with the bank
- Frequency of defaults (if any)
- General usage on the account and spending behavior
- Consumer credit reports

Common jargon used in Balance transfer credit cards
Here are some commonly used terms in balance transfer, that can possibly help demystify some of the language used.

APR – Also known as Annual Purchase Rate. Refers to the interest rate at which purchases can be made. In other words, any purchase made will be subjected to this rate. If a promotional interest is on offer for a certain duration, then the purchases will be subjected to the promotional rate if the purchase is made within this time.
Balance Transfer fee – This is a fee charged by the credit card company that is offering balance transfers. It is charged as a percentage of the total amount transferred.
Credit limit – This is the maximum amount authorized to be used a credit from the lending company. If exceeded, an over limit fee is charged.

All in all, balance transfer credit cards offer a convenient way to keep track of liabilities under one umbrella.

ADDITIONAL INFORMATION ON BALANCE TRANSFER CREDIT CARDS!

CREDIT CARD TYPES

Choosing the credit card that's best for your needs and situation starts with knowing what options are available to you. The following list details the most common credit cards available:

	Balance transfer credit cards - Balance transfers are a way of transferring outstanding balances from existing credit cards to another card that offers a lower interest rate. For example, if you your have a high annual percentage rate (APR) credit card with a significant outstanding balance, you can transfer the balance to another card with a lower rate or even one offer zero interest. Typically these cards offer low balance transfer rates for a specified period of time allowing you to save hundreds (or even thousands) of dollars in monthly interest charges.
	Low-interest credit cards - These cards offer a low introductory annual percentage rate (APR) for a promotional period, after which they can change to a higher rate or a fixed-rate. If you plan on making a large purchase, it's a good idea to pick up a low-interest credit card to take advantage of the savings on interest during the introductory period.
	Cash rebate credit cards - Cash rebate cards accumulate "points" for1 every purchase you make using the card. Most cash reward cards award a point based off 1% of the purchase total, excluding interest and finance charges. For example, if you make a purchase for $1,000 the credit card will award you with 10 points (or, $10.00). These cards are great for loyal customers who make payments on-time every month.
	Reward credit cards - Reward credit cards are similar to cash rebate credit cards, but differ in that they offer various forms of "rewards" for the purchases you make. For example, you can accumulate rewards for frequent-flyer-miles, free magazine subscriptions, and even hotel and travel discounts. Ideal for those who enjoy getting something for free from their credit cards.
	Travel credit cards - Travel credit cards are ideal for the frequent flyer who travels the globe on a frequent basis. These cards accumulate significant reward points every time you make a travel-related purchase. You can gain discounted airline tickets, rent cards for free, and even get discounted hotel rates!
	Pre-paid credit cards - Pre-paid credit cards are ideal for those who are on a tight budget and don't want to fall prey to the financial pitfalls associated with standard credit cards. They work similar to gift certificates or debit cards. You deposit money into the card and then use the card to make purchases as you would a typical credit card.
	Secured credit cards - Secured credit cards are ideal for people with poor or no credit. They work on a collateral system, where you put up something of value against the debt on the card.