The Dangers of Credit Card Promotional Interest Rates

The subject of credit card interest rates is not a subject that many people enjoy discussing. Credit cards typically offer promotional interest rates that are designed entice new customers to do business with them. Many times, they will give you a zero percent interest rate for a year or more just to get you in business with them. While this can be beneficial at times, promotional credit card interest rates also have some dangers that come with them. Here are a few things to consider about the dangers of credit card interest rates. 

Accumulating Balances

Although the credit card companies will not tell you this, they are hoping that you accumulate a large credit card balance while on your promotional interest rate. When you have zero percent interest, it is like someone giving you a free loan. You are tempted to buy more things than you need. Many consumers go out and buy home entertainment systems, gaming systems, and almost anything else that they can fit on the card. They trick themselves into thinking that they have plenty of time to pay off the balance. However, a year is really not that long when you have a credit card balance in the thousands of dollars. Many people that have credit cards do not make enough extra money each month to pay off the balance before the promotional period is over. 

If you have a large balance when the promotional period is over, the interest starts to accumulate rapidly. You can find yourself in deep trouble at the end of the promotional period. If you do get a promotional period on a credit card, do not overspend during that period. Use the card like you normally would and make sure that you do not put too much on it throughout the year. 

Much Higher Rate

Another common problem associated with promotional interest rates is that people have no idea what their interest rate will be afterwards. When you have a zero percent promotional rate, any credit card interest rate is going to seem much bigger afterwards. People get in the habit of not paying any interest on the things that they buy. Then the promotional period is up and they keep doing things in the same way without changing their habits. However, the credit card company may be charging you 25% interest now on the things that you buy. 

Balance Transfers

Many people also transfer balances from other cards onto their cards with the promotional rate. While this can actually be a good strategy if you do it correctly, it can really hurt you if you do not take care of it and pay it off. You can fill up a card very quickly if you transfer the balances from several other cards over to it. Then when the promotional period is over, you have a huge credit card balance gaining interest at a higher rate. 

You should properly budget any balance transfers and make arrangements to pay off the debt as quickly as possible. Make a plan and stick to it.

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