The Hidden Agenda of a Balance Transfer Credit Card

Sky is the limit!  This seems to be the credo of some credit card users – sadly, including me. How many times have you maxed out one credit card, only to be lured by the prospect of applying for another? Speaking for myself, I tend to do so all the time. In fact, the waiver of annual charges, the lower interest fee, and sometimes, the better privileges that a new card offers have often proved to be irresistible.  Lately, I discovered another major card advantage. This is something known as a balance transfer credit card.

Most American banks, being aware of the typical spending habits of the American population, have realized that more often than not, people tend to max out their existing credit cards. Which is why the balance transfer credit card has become so popular in the first place!  Simply put, a balance transfer credit card is one in which, when you sign up, you transfer the balance from your old credit card to the new one. At a preferential rate of interest that is. For unless the interest rate is lower, there is no incentive for you to take up a balance transfer credit card, is there?

The Rationale:

Why do the banks give out such apparently self-defeating, balance transfer credit cards? The answer is quite apparent. There is far too much competition in the existing credit card market,  and the margins are painful. More importantly, with a balance transfer credit card, the new bank can not only get your loyalty, but also any future spending that you do on the new balance transfer credit card.

I have used the balance transfer credit card from various banks whenever I have found the spending limit on my existing card greatly compromised. But remember that the balance transfer credit card is more a tool for consolidating your existing credit card debt than a license to splurge!

Check for danger signs:

There are a few things about a balance transfer credit card that you must keep in mind,  in order to get the most out of it. First and foremost, the interest rate on your balance transfer credit card must be substantially lower, than your existing credit card. Unless this is the case, the balance transfer credit card will only become a way to borrow from Cain to pay Abel! Second, check if your balance transfer credit card is time bound. More often than not, the new credit card comes with a specified time limit when the preferential rate of interest will apply. Check to see if this is to your advantage.  Third, it would also pay to check if the balance transfer credit card has any hidden charges or fines. Doing so will not only ensure that you actually get the best deal on your new card, but will also prevent any nasty surprises at a later date.