Americans often leap at credit cards that allow them to transfer balances for 0% interest, especially during the busy holiday season. But they often don't really get how those cards work.
That's according to a new report from CompareCards.com which found that 76% of card holders mistakenly believe that if they don't get rid of their balance during the promotional no interest period, they'll be on the hook for interest dating back to when they opened the account.
That matters since only 54% of those who have such cards paid off the entire transferred amount during the introductory period, down from 59% who did so in 2018.
The confusion may arise from consumers mixing up balance transfer cards, with the deferred interest products often pitched to shoppers by retailers.
DEFERRED INTEREST IS A DIFFERENT TYPE OF CARD
The retail cards may look like a deal initially, but if a cardholder is late with a payment, or owes even $1 of their initial balance once the promotional period ends, they will be hit with interest for the entire amount they originally charged, potentially miring them in debt.
But balance transfer cards can be a helpful tool.
"Zero-percent balance transfer credit cards can be a lifesaver if you’re looking to consolidate and knock down your debt,'' says Matt Schulz, CompareCards' chief industry analyst. "They typically come with fees, deadlines and other quirks, so they’re not perfect. But if you know the rules and use the card wisely, it can save you a lot of money. Just make (sure) you don’t see the new card as an excuse to go shopping."
Whether or not they are able to quickly pay off the balance, many Americans agree that opting for the lower interest rate is worth it.
NEW YEAR, NEW CARD
Almost 20% of consumers with credit cards say they intend to open a new account in 2020 specifically so they can switch over what they owe on another card. And another 32% are thinking about it.
Such cards are particularly popular with men, who are twice as likely as women to open them, as well as Millennials. Roughly one-third of consumers in their 20's and 30's intend to open a card that allows a balance transfer next year.
There are plenty of options to choose from, according to CompareCards.com which found that that almost half of the cards they looked at offered 0% interest on transferred balances for periods ranging from six to 36 months, with 14 months being the typical time period. And cardholders usually had 60 days to decide whether to take advantage of the offer.
Among those cards, 18 did not charge a fee to transfer over a balance and four others offered to waive such fees for a short promotional period. When there was a fee, it was typically 3% of the amount that was transferred.
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December 20, 2019 at 11:10PM
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Is that 0% interest card a good bargain? Yes. But many Americans don't know it - USA TODAY
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