You might have seen all the ads and promos of different credit card companies offering low interest rates on balance transfers to new customers. Because of the increasing competition from different credit card companies, new strategies are being implemented to draw in more customers. One of these methods is by offering a very low to 0% interest rate on balance transfers. The credit card company making this offer is effectively targeting two areas with only one feature. First it effectively reduces the customers of its competition and secondly it increases the number of their customers.

Why is the balance transfer feature important today? Let’s first take a glimpse at credit card usage. Lots of people today have credit cards. Students use it to pay their bills or make purchases on textbooks, housewives use it to pay for groceries; from regular people to business executives you will see credit cards being used. Because of its convenience we usually just swipe it to make payments and just settle it later when our monthly bill arrives. Usually when we settle our bill on time there wouldn’t be any problem. The problem arises when we fail to settle our monthly credit card bill. If this keeps on happening then our debt would soon increase since the interest rates would increase rapidly.

In the beginning people would use their other credit cards to cover the outstanding balances of their credit card bill. This method was seen as a temporary way to manage their debts. Soon, credit card companies found out that it would be a wise business move to include a balance transfer feature on their cards. At first glance you might think that credit card companies would lose in this kind of feature. Although profits would be low by introducing a 0% interest rate, the long term business goals of these companies would be achieved.

By providing tempting balance transfer offers, credit card companies are bringing in new customers to their fold. Since competition among the different credit cards is very stiff, offers of 0% balance transfer rates are being offered.

Are credit card companies losing by offering 0% interest on balance transfers? Not exactly, even if their profit would be significantly reduced they could still make a lot from other ways. You might think that the 0% interest rate you are enjoying is permanent. If you read on the fine print it might be stated that it would last for 6 months or only 1 year. If you make a single missed payment you might get charged a large interest as well. Basically if you do not follow all the terms and conditions of the credit card there is a huge interest rate involved which you have to pay. This is where the credit card companies would make money.

To make sure that you save more by paying less, be sure to follow all of the guidelines the credit card has. The main purpose of doing a balance transfer is for you to effectively settle your debt. If you end up paying more it would defeat the purpose of a balance transfer.

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