The Lure of a Credit Card Balance Transfer

by Investing School on August 26, 2009

At the height of the credit card wars, when every card company was jockeying into position to milk whomever they could out of their last dime, a balance transfer was the ticket to entice consumers into switching to a new card. After all, who could resist moving a balance from one card company to another if the new one promised a lower interest rate? What most consumers didn’t pay attention to was that this lowered rate was for a limited time, and then they were often hit with an even more exorbitant interest rate on an even larger credit balance.

The consumer had a false sense of entitlement because they, never taking into consideration that the lowered rate actually expires, lived with the illusion that they gained more purchasing power and thus racked up their balances even higher without thinking of the consequences.

In short, these consumers continued buying at an exorbitant rate.

Then the ax fell as all financial companies went into a tailspin, and a large percentage of credit card holders were unable to meet their payments. Credit card companies panicked when customers started falling into bankruptcy, so they pushed for legislation to prevent consumers from claiming credit card debt when they filed for bankruptcy. At the same time, customer complained to congress that credit card companies shouldn’t be able to increase their rates without much notice.

In my opinion, a balance transfer is only a good idea if you don’t run up the balance after the transfer because the interest payments got lower temporarily. For those that cannot control their urge to spend even more just because they can, sometimes sticking to a higher interest rate is the most prudent thing to do even though mathematicians would disagree with the logic.

This is just a start of the discussion, for more information about 0% balance transfer credit cards and a list of possible options, follow that link.

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