Credit Card Balance Transfer Offers

Watch Out for the Default Rate on Balance Transfer Credit Cards

I’ve already spoken about the benefits of balance transfers in depth, along with the problems and pitfalls.

But one thing I forgot to mention was the default rate on balance transfer credit cards.

By default rate, I mean the interest rate your credit card will adjust to if you fail to make an on-time payment, or go over your available credit limit.

While the penalty APR (and the penalty trigger) will vary by credit card issuer, it tends to be in the high-20% area, which would be detrimental to most card holders looking to pay off high balances.

Let’s look at an example:

Say you snag a 0% APR balance transfer offer for 15 months and miss a payment after two months.

Per the terms and conditions of your cardmember agreement, the credit card issuer could bump up your APR to the default rate of 29.99%, and kill off your promotional APR at the same time.

So instead of paying nothing in the way of finance charges, you’d be stuck paying an arm and a leg each month.

That late payment would also make it more difficult to transfer the balance to another credit card, though you can always inquire about balance transfer offers for existing customers.

So be sure to continue making on-time payments, even if it’s just the minimum, to hold onto that low promotional rate.