Home > Credit Cards > Credit Cards: Middle Class Users Could Regret Their Trust On Zero Percent Transfer Deals
Credit Cards: Middle Class Users Could Regret Their Trust On Zero Percent Transfer Deals |
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Credit cards debt is a universal
affliction of the modern age. But when borrowings mount and the repayment
demands become more urgent, the way to appease your creditors might be through costly loan consolidation schemes. The choice is even more limited for people with a low income and poor credit history. So, you might find yourself forced to apply for one of those costly loan consolidation schemes, advertised on TV. But there is an alternative in the form of zero percent rate credit cards. Zero percent rate credit cards allow you to transfer your high interest rate credit card balances into 0% credit cards. Middle class consumers have been taking advantage of these 0% credit cards. In fact, middle class consumers can apply for 0% credit cards deals and use balance transfers to switch the card, overdraft and other debts. And when the interest-free introductory period ends, the debts are switched yet again to another card. But this balance transfer game cannot continue for ever. It's also dangerous, especially with credit cards companies determined, to recoup losses of about $1 billion a year, from this area of their business. However, transferring overdrafts, personal loans and credit cards debts to a 0% card have become an essential lifestyle choice for many middle-class households. One such consumer, Anne, has revealed in print that she has accrued massive credit cards debts through such transfer of credit cards. But her situation is not uncommon, with many, even her friends and colleagues, exploiting balance transfer options to keep their creditors at bay. Seasoned players of the balance transfer game know that the ideal way to play is to move your balance to a good deal and pay off the debt, before the charges kick in. However, only about 60% of 4.2 million people who have transferred debts have managed to clear their borrowings, before the deadline. The rest usually end up looking for a new 0% credit cards deal, to which they can transfer their debts. Before they know it, their debts have grown out of proportion. In a study published by Professor David, he states that it has become extremely difficult to "churn" debts, without incurring any costs. According to him, some of the credit card companies cannot sustain their current offers of 0% interest. This means that they may have to do away with such offers or start introducing new charges, to help to reduce their losses. Research done in 2003 has shown that none of the credit cards offering 0% interest on balance transfers, applied charges for transferring balances. But today, about 11% of credit cards companies do charge for transferring balances. The increasing cost of churning your debt is not the only threat to your credit. If your 0% credit cards provider charges for purchases, any repayments you make will service the cheapest debt first. For example, if you transfer $3,000 to a new card with a 0% balance transfer rate but use it for purchase worth $300, you'll incur an interest of 15%. But if you pay back $300 at the end of the month, assuming that will take care of the purchases, your repayment will actually knock a chunk off the original $3,000 transfer. And the $300 purchases will continue to incur interest, which you cannot take care of until you repay the entire transferred balance. Then there are some 0% credit cards, where one late payment will catapult your rate right back to where it was before you switched cards. And when you transfer balance from credit card to another, you aren't actually paying off your loans. So, it's still possible to transfer credit card balance to 0% credit cards. But do it to close your old card, and remember to pay off the new one. However, many people use this as an opportunity to spend again. So, if you regularly carry a balance, maybe you should review your spending, and not your credit cards rates. |
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