Balance transfer credit cards can be a great way to effectively cut costs by allowing you to transfer high interest rate balances to a credit card that charges lower rates. Doing this repeatedly however, can be a bad idea in more ways than one. The low interest and 0% offers are introductory rates that last, on average, from 6 to 12 months. This will in fact give a brief respite from paying high interest rates, but when the introductory rates expire you will find yourself right back where you started if you still carry a balance.
The problem lies in the fact that with far too many people they simply move on to the next balance transfer offer. In many ways it is nothing more than a credit carousel. And the ride has to end at some point in time. Of course, the credit card companies will not tell you this but there are several reasons why you do not want to pursue this type of strategy. The following points illustrate the dangers involved.
1. Constantly switching credit cards and shifting debt sends a signal to creditors that you are having financial problems, whether you are or not. You will be viewed as a greater credit risk. Having too many credit card accounts, whether open or closed, is also seen as a negative and will hurt your credit score.
2. By continually switching credit cards you also pose the risk at some point of being cut off by the credit card issuers. Remember, the credit card companies make their money on people that pay interest, not by people that avoid it by constantly opening new accounts. At some point the card companies are going to say enough is enough and you will not be able to open any more accounts.
3. Other lenders besides the credit card issuers will also look negatively on this kind of activity. If you should happen to apply for a mortgage or car loan, and have a history of opening and closing credit accounts, they may see you as an undesirable client. And really you can’t hardly blame them. If you jump from one credit card to another, you are probably a good candidate to do the same with the loan you get from them.
4. Another danger to having an introductory offer is that if you should happen to be late or miss a payment, your interest rates will skyrocket. They will never admit it but credit card companies love it when this happens. You can literally go from paying 0% APR on an introductory offer to paying nearly 30% interest overnight.
Please understand that these warnings are not intended to scare you away from taking advantage of credit card balance transfers. Balance transfers, when used wisely, can be an outstanding financial instrument. But as with anything else, too much of a good thing is no good. You can very well do more harm than good. Take the above dangers under advisement and don’t go overboard. With that said, balance transfer credit cards can be a great way to save money on high interest rates while getting you out of debt.