No Balance Transfer Fees: Are they important?

The credit card has proven to be a financial disaster for many families and young adults. However, credit card companies offer many benefits and extras to promote their business and give borrowers the opportunity to get debt under control, such as the no-balance transfer fee. To avoid being overtaken by credit card debt, it is imperative that borrowers carefully weigh all options and benefits before deciding on a program that will benefit them most when applying for a credit card.

If a borrower already has debt and is applying for a credit card, the no-balance transfer fee is an important card feature to look for. Many companies will provide borrowers with the option of rolling the balance owed from one card onto the new account. This may seem like a good idea, especially when combined with other perks like no or low interest for a limited amount of time. However, there is often a set fee, or one based upon a percentage of the transferred balance, to do this. This fee is often equal to or greater than the amount of interest that would be saved by making the transfer. However, when the offer includes a no-balance transfer fee, the ability to transfer the balance of one high-interest card to a low- or no-interest account enables the borrower to reduce the amount owed without incurring extra fees and may permit the borrower to pay off the debt at an earlier date than expected.

But there are pitfalls to the no-balance transfer fee. Many borrowers see it as an opportunity to consistently avoid paying normal market interest and fees, and continuously transfer balances from one credit card to another. This is often the first step in the wrong direction. These uniformed borrowers amass cards and debt. A common situation that arises from this scenario is after the third or fourth switch; the borrower attempts to continue the process and is denied a credit card. This immediately lowers the borrower’s credit rating and sends a warning to all other creditors to beware. Such a misinformed person is now trapped in the terms of use of the last credit card issued. When the benefits of low or no interest for a limited amount of time has expired, the borrower may be locked in a high interest rate. Careful planning should be used when incurring any type of debt.

Accepting responsibility for finances and creating a financial plan of action is of top priority during the current financial downturn in the United States. If the nation is to recover from its recession each citizen must take part in the financial health of the community.