Balance Transfer Disasters: Case Studies

disasIf you’ve just opened a new account with a credit card company, making a balance transfer may well be one of your top priorities. More and more people are using this strategy to manage their debt, but before you get started you should understand the risks involved and the best ways to steer clear of them. To keep yourself safe from balance transfer disasters, follow these simple suggestions.

 

Why Balance Transfers Are Risky

Lenders are eager to meet the needs of consumers who are constantly on the lookout for more debt management solutions. This has led to a profusion of fresh offers for balance transfers that may not be as useful as they first appear! You need to protect yourself from potential transfer problems like these:

* Unexpected Interest Charges

* Surprise Fees

* Time Frame Changes

* New Provisions For Payment Allocations

* Annual Percentage Rate Variations

* Failed Transfers

Here are examples of what each of these problems may look like:

* Unexpected Interest Charges

Looking for a heavily-promoted zero percent rate on balance transfers, you decide to shift your debt off of a card with a 17 percent interest rate to one that you think will give you a zero percent rate for the next year. Your hope is to save yourself from a year’s worth of interest payments. When the first bill for your new card arrives, though, you discover that your whole balance – including the debt you transferred – is subject to an 18 percent APR.

* Surprise Fees

Say you opt for a better offer instead, transferring your debt to a new card that you have thoroughly verified will actually charge a zero percent rate on balance transfers. Eager to reduce your expenses, you transfer eight thousand dollars to the new account. According to the agent you speak with, there will be no transfer fee involved. Your next statement tells a different story! You’ve been charged a 3 percent transfer fee, meaning that moving your debt to your “interest-free” card has just cost you $240.

* Time Frame Changes

This is a particularly common and frustrating trap to run into. Say you’re hoping to take advantage of an interest-free one year grace period on your new card account. You shift $5,000 off of an existing card account that charges you 12 percent interest. For six months, everything seems to be running smoothly. The seventh month brings disappointment! Your grace period has ended sooner than you thought it would, and your new company is now charging you 18 percent interest on your balance.

                               

* New Provisions for Payment Allocations

A credit card user who is transferring debt around is principally interested in two things – long-term debt maintenance, and day-to-day purchases. Many credit cards are set up to cater to these different purposes, offering different rates for each under certain circumstances.

You might open up such an account and transfer existing debt to it with the intention of holding that debt at a lower rate while using your monthly payments to pay off your day-to-day purchases, avoiding even more interest. When your statements start showing up, you see that the credit card company hasn’t used your payments the way you intended; you’re paying down your zero-interest balance while your newer balance is sitting still – and racking up more interest.

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* Failed Transfers

This happens far more often than you might think. All you intend to do is move your money off of an old credit card which charges you a high interest rate onto a new one that offers significantly lower rates. You make arrangements for a balance transfer by speaking to your older company and hang up the phone happy with your new interest-lowering financial arrangements.

A new monthly statement arrives and you discover that your balance on the old card is unchanged! You speak to your new credit card company and only then do you discover that the balance transfer has failed and is, for whatever reason, impossible to complete.

In Conclusion

You always need to bear in mind that you’re far from the only consumer who’s trying to manage debt by seeking lower interest rates and transferring balances. Lenders are quick to take advantage of unsuspecting customers who fail to check their promotional offers carefully; the disasters listed here are just some of the risks you face if you don’t do your homework.

Related:

What Are The Benefits of Credit Card Balance Transfers

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