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Most consumers don’t understand 0 percent balance transfer cards, study finds

But they could be useful in paying off your holiday spending binge

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Photo (c) Farknot_Architect - Getty Images
Many consumers are waking up today with the realization that they have overloaded their credit card during the holidays with a balance that will take months to pay off.

It happens. But transferring the balance to a new card with a 0 percent interest rate for the first year or so can help you pay down the balance faster and spare you the double-digit interest charges you would pay otherwise.

In its annual balance transfer card report, CompareCards.com reviewed the terms and conditions of 167 credit cards that allow balance transfers. Once again this year, the researchers found that interest-free introductory periods are still easy to find.

In searching for a card, consider one that doesn’t carry a one-time balance transfer fee. Most balance transfer cards charge a fee of at least 3 percent. On a $5,000 balance, that comes to $150.

The Chase Slate card now offers a 0 percent rate on transferred balances for 15 months. If you transfer the balance during the first 60 days the account is open, you won’t pay a balance transfer fee. If you wait until later than that you’ll pay a hefty 5 percent fee.

Common misconceptions

The researchers found that 75 percent of the consumers surveyed mistakenly believed that they would be assessed interest on the full balance if they didn’t pay it off completely during the transfer card’s introductory period. That’s not the case, although that’s exactly what happens with a merchant’s “deferred interest” plan.

With a balance transfer card, 100 percent of your payments are used to pay down the balance during the introductory period. At the end of the introductory period, the card’s prevailing rate kicks in. The rate can be as high as 25 percent for many balance transfer cards, so it’s important to pay as much of the balance as possible during the interest-free introductory period.

According to the survey, nearly 20 percent of consumers with credit cards plan to apply for a new card that will allow them to transfer a balance. Another 32 percent said they’re thinking about it.

This is a fairly common practice. About half of all credit card customers say they have opened a new credit card account just to transfer a balance and take advantage of a 0 percent interest rate. Of that number, 18 percent have done it more than once.

The experts at ConsumerAffairs have researched balance transfer credit cards with an attractive introductory promotion. You can check out their findings here

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