It seems that hardly a week goes by without receiving a balance transfer offer from one of my credit card companies.  These offers always sound very appealing in that most offer 0% APR for the first 12 to 18 months.  I learned at an early age that, if something sounds too good to be true, chances are it is.  Such might be at least partly true with these offers.

First off, it is indeed incredibly good to have an opportunity to avoid paying interest on any balance, even if only for a short while.  However, with the offers that I have received, the devil is in the details in that the fine print states that all new charges will accrue interest until the entire statement balance is paid.  The fine print also defines the statement balance as both the new charges and  the balance that was transferred from the other card.

Thus, if you normally pay the statement balance in full each month, you’ll immediately start to pay interest on the new charges that have occurred during that particular billing cycle.  Since this is cumulative with all new charges in future billing cycles, the amount of interest you will pay will continue to increase with each billing cycle.

This could be disappointing for someone who uses his/her credit card heavily and has avoided paying interest by paying his/her statement balance in full.  Yes, you’ll have the 12 to 18 months 0% APR on the amount that was transferred, but you’ll also start to pay interest on all new charges until you pay the card off in full.  Also, chances are the bank will deduct each monthly payment from the 0% APR balance that was transferred, not the new charges and until that 0% APR balance is depleted.


Hence, in such cases, you should determine if this progressively increasing interest expense truly offsets the cost of the interest being paid on the other credit card.  I suspect it would in most cases.  Please also note that the rate of increase of these new interest charges will depend entirely on the APR and how much you use that particular credit card.  If it’s a high APR and you use the card heavily, then your interest payments will increase quite rapidly, and you’ll erode your 0% APR balance quite rapidly.  However, if your balance is zero at the time you transfer the balance from your other card and you do not add any new charges, then you should indeed be interest free for the full 12-18 weeks.

Again, I figure a balance transfer of this nature would still pose an advantage in most cases, just a more modest one depending on the APR and how much you use the card after transferring the balance from your other card.

I just wanted to point this out to help level-set expectations.

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