Many card providers run promotions to attract new borrowers by offering consumers to roll their existing credit card debt incurring double digit interest cost with some other provider, to their creditcard. The offer is usually temporary and can last for 6 – 12 month. During this time either no interest will be charged on the rolled over debt, or a very low rate of interest may apply.
Taking up a card balance rollover offer can offer a number of pros but also several cons. It is important to understnd how these offers should be used and what to do to avoid being ‘stung’ further by the card providers..
Paying no interest
Just imagine moving a $50,000 debt from a card where you are charged 20% p.a, to one where the rate is 2%. The savings made can be applied directly to repay the debt principal. In a year when our credit card reverts to a higher rate on interest you simply roll over the remaining debt to another low rate card and go again. This process is repeated several times until your debt is fullt repaid at next to no interest.
Where this strategy can go wrong is if you decide to use the new credit card to make more purchases. That is what the card providers are hoping you will do, and they will do everything they can to push you into making purchases with your new card.
Allure of continuing to spend on credit
Whatever you do you ust not use the balance rollover card to make new purchases on credit. If you do, the whole debt reduction strategy will fail. You will need to repay the new debt first before being able to get to the rolled over debt. This is indeed a trap to avoid. Once you decide to roll card debt over, you can not use that card for any other purpose.
Interest rate after introductory period
The other risk is missing the low interest rate end date. After that date, your cheap card is likely to be much more expenssive. To ensure that you continue to successfully repay credit card debt, the debt balance must be rolled over to a new low rate card at the expiration of the low rate period.
Debt reduction must remain a priority
Debt reduction does not happen automatically – it must be a priority or else you are bound to fail. Having to pay no interest on your card debt can really make you feel like you can afford to spend more money. If you choose to spend, then the interest fee period will not result in debt reduction, possibly quite the opposite. Balance rollover cards certainly can help with debt reduction but only if that is your priority. It is easy to loose focus and simply keep on spending.